The Group’s bottom-line continued to be affected by on-going challenges with regard to its current financial plight. 2QFY19 net loss of RM12.0m (-24.8% YoY, +>100% QoQ) and cumulative 1HFY19 net loss of RM13.4m (-20.1% YoY) are mainly the result of an RM17.2m provision for impairment of property, plant and equipment, though partly mitigated by an RM9.2m reversal of provision for liquidated ascertained damages. Cumulative 1HFY19 revenue of RM96.6m is lower 43.4% YoY due to fewer on-going projects, and which is likely to deplete further as its current financial difficulties have prevented it from securing new jobs. The Group’s recent announcement of a funding arrangement is a much-welcomed development which provides some temporary reprieve. Pending clarity and details on its regularization plan to which the Group has sought a further 9-month extension to provide, our target price/valuation remains under review. Our Neutral call is maintained, with earnings estimates also left unchanged at this juncture, though we caution for significant downside biases.

• The Oil and Gas segment reported a pretax loss before interest and tax (LBIT) of RM7.1m for 1HFY19 predominantly due to the provision as mentioned above. Despite its financial challenges, the Group endeavours to expand in its areas of core competency (ie. specialty chemical, well intervention and diagnostic services), though also looking to exit the mobile crane and specialized lifting services, expected by year-end.

• The Technical Services (TS) segment saw a pretax profit of RM8.7m in 1HFY19 however, with the reversal in provisions playing a large part. The Group’s intent on securing new tender awards for construction and maintenance projects is laudable, though likely to be highly challenging at this juncture given its financial situation.

• Insights into regularization plan. In explaining the rationale for its recent funding arrangement, the Group revealed that it had previously contemplated a regularization plan involving among others, a proposed capital reduction exercise, a proposed rights issue of new ordinary shares in Daya Materials with free detachable warrants, and a proposed restructuring of debts owing to Perfect Propel Sdn Bhd which was announced on 18 January 2019. The Board is now considering an enhanced regularization plan which is envisaged to entail, among others, a proposed share exchange between Daya Materials and a Newco and the assumption by Newco of Daya’s listing status, a distribution of shares held by Daya in identified viable subsidiaries to Newco, a proposed settlement of debts owing to financers and creditors, a proposed Put Option, and a proposed fund-raising exercise comprising a rights issue and placement of Newco shares with warrants.

Source: PublicInvest Research - 29 Aug 2019