News

• Dayang has proposed to raise an estimated amount of RM87.7m through private placement on an announcement in Bursa last Friday.

• Indicative placement price is expected to be at RM1.00/share, 6.2% discount to its 5-day WAMP of RM1.0661.

• The deal is expected to be completed in 2Q17 while no specific approval is required from the shareholders.

Financial Impact

• The intention of the private placement is to repay part of its borrowings and it will result in interest cost savings worth RM5.29m p.a. upon partial paring down of the debts.

• EPS dilution impact is circa 10% (after share base increase). However, it will be fully offset by interest cost savings.

• Proforma calculations in the circular have also shown that the private placement would reduce its gearing to 1.1x from 1.3x as of 31 st Dec 2016.

• The placement, in our opinion, is neutral to the company in the near term but it provides the company a firmer balance sheet in the long term.

• During times of difficulty in the O&G sector, de-gearing for the company is a sensible move as it will reduce its liquidity risk while provide for a more solid war chest for it to ride on the long term recovery of the sector.

Forecast

• Maintained.

Rating

HOLD ( ↔ )

• While recent improvement in oil prices has somewhat brightened the outlook of O&G players, we believe that it is still too early to get overexcited about Dayang’s prospects as the recovery may not be sufficient to justify valuation rerating in the near term.

Valuation

• Maintain HOLD call with TP at RM1.16 based on 0.8x CY17 PBV. Our TP of RM1.16 implies FY17-18 P/E of 24.2x and 14.7x respectively

Source: Hong Leong Investment Bank Research - 27 Feb 2017