News

Proposed private placement of up to 82.45m shares, representing 10% of the paid-up share capital to third party institutional investors to be identified later.

The issue price of the placement shares will be determined at a later date.

Assuming an issue price of RM3.69 (5-day VWAP), the proposed private placement will raise approximately RM304.4m, which will be utilized for working capital requirements and/or for potential investment projects.

Financial Impact

Dilution should be offset by potential investment project… We opined that the fund raising should be for new potential investments/projects given its strong balance sheet with 0.1x net gearing as of 2QFY14 and should mitigate the potential dilution.

Turn into net cash position… Net debt of RM82m as at 2QFY14 will turn into net cash position after the proposed private placement.

Pros/Cons

We are surprised by the proposed private placement given Dayang’s strong balance sheet which would not require additional funding. Hence, we believe the company is raising war chest for new potential projects.

Despite already secured huge existing orderbook, Dayang has an outstanding tender book of RM400m with outcome to be known by 3Q14. To note, we have assumed zero contract replenishment in FY14 and FY15, any contract win will provide upside to our forecasts.

Many of the offshore platforms in Malaysia are over 20 years of age and urgently needs upgrading. These HUCC and topside maintenance contracts are normally recurring every 5 years. Given Dayang’s strong track record and execution abilities, we believe Dayang will continue be a winner and is emerging as a power house offshore HUCC player in a region of aging O&G infrastructures.

Risks

Political risk; Delays in contract disbursement; and Execution risk.

Forecasts

Unchanged.

Rating

BUY

Positives –

• solid track record and expertise in HUCC.
• captive market for topside maintenance.

Negatives –

• unsure of international growth prospects.
• difficulties in sourcing O&G engineering talent.

Valuation

We maintain our BUY call with unchanged TP of RM4.07 based on an unchanged 14x (sector target for small-mid cap stocks) FY15 EPS of 29.1 sen/share.

Source: Hong Leong Investment Bank Research- 4 Sep 2014