Results

• Below expectations: 2Q17 core net profit came in at RM18.4m, improving 1H17 core loss to RM14.8m, which was below HLIB estimate (RM44m profit) and consensus (RM67m profit).

Deviations

• Weaker than expected charter rate for Marine segment.

Highlights

• YoY: Core net profit improved five-fold mainly due to stronger TMS contribution upon cost cutting measures and lower interest costs. This was partially offset by widened losses on Marine segment caused by lower vessel charter rate.

• QoQ: Turned into profit from core loss of RM 33.2m thanks to (i) higher sequential TMS contribution upon higher work orders and absence of monsoon (as experienced in 1Q17); and (ii) narrower Marine losses due to improved utilisation.

• 1H17: Core loss narrowed to RM14.8m driven by (i) stronger TMS contribution; (ii) lower interest cost due to restructured loan; and (iii) lower admin cost due to cost cutting measures.

• The group has gained approval from shareholders in EGM on 9 th August 2017 for the proposed distribution of 292.2m shares in subsidiary Perdana to Dayang shareholders. The share distribution is expected to be completed by September 2017.

• Based on our implied fair value for Perdana, the dividend share isworth 12sen/share, yielding 13% for shareholders. This is an extremely conservative valuation given that the last traded price of Perdana share was RM1.55, translating into RM0.51 per Dayang share held, (indicating significant premium to our assumed dividend value).

• The group’s balance orderbook stood at RM2.3bn, extending until 2019. The stabilisation in oil prices would spur higher work order issued leading to gradual improvement in earnings.

• The group is still awaiting results for tenders worth RM4bn and we expect decision to be known earliest by end of 2017, which will add partially to its current orderbook.

Risks

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

Forecasts

• Cut FY17/18/19 forecasts by 26/20/17% to account for higher losses from Marine segment.

Rating

BUY ( ↔ )

• The announced dividend in specie will be a catalyst for the company with high dividend yield expected to be generated while medium term outlook is positive for the group due to incoming contracts to be dished out in the sector.

Valuation

• As a result of earnings cut and downgrade of valuation of Perdana to 0.4x FY18 PBV (from 0.5x), SoP-driven TP is cut to RM1.20 from RM1.42 (see figure #4). Maintain Buy .

Source: Hong Leong Investment Bank Research - 24 Aug 2017