Destini’s (Non-rated) share prices slid 40% in 3 days post GE14 amid fears of the new PH government would review the on-going and upcoming projects. We opine that the selling was overdone as Destini’s 6.3x FY19 P/E (36% below its average 10-year P/E of 9.8x) and 0.59x P/B (55% lower than 10-year average of 1.3x) could have priced the potential business uncertainty, supported by its high barrier to entry businesses and decent orderbook coupled with an anchor shareholder, MoF.

An Established Integrated Solutions Provider With Global Presence. Destini is a one-stop engineering solutions provider with diverse interest in the aviation, marine, land transport as well as O&G sectors. With a core business in ensuring safety and survival equipment efficiency in these industries, the Group excels in being one of the leading maintenance, repair and overhaul (MRO) service provider in the regions. To date , Destini has expanded its geographical footprint over the Asian, Australian, Middle East and European regions. In FY17, the marine divisions contributed 52% to revenue while the rest were from aviation (40%), O&G (4%) and land & transport and others (4%). Currently, Destini’s single largest shareholder is Dato’ Rozabil Abdul Rahman (Group MD) with a 24.8% stake, followed by Aroma Teraju (17.3%), a wholly-owned subsidiary of the Ministry of Finance.

Values Emerge After Recent Rout. Destini’s share prices slumped 40% from RM0.43 on 8 May to RM0.26 yesterday on the back of knee-jerk selling activities. We opine that the selling was overdone as Destini’s 6.3x FY19 P/E (36% below its average 10- year P/E of 9.8x) and 0.59x P/B (55% lower than 10-year average of 1.3x).

Destini’s core business of maintenance, repair and overhaul (MRO) safety and survival equipment for the Royal Malaysian Arm Force (RMAF) is defensive and has high barrier of entry and its orderbook of ~RM930m could provide earnings visibility for FY18-19. With the group’s proven expertise and experience as well as good track record and competitive pricing, we see there are good chances of success in new helicopter supply, vessel construction orders and rail related contracts. Many of the existing and new contracts will also provide MRO service opportunities.

Potential Downtrend Reversal. Technically, the positive Tweezers bottom could signal potential downtrend reversal after recent slump. Moreover, significant downside risks are limited amid steeply oversold indicators. A decisive breakout above RM0.30 (23.6% FR) will spur share prices higher towards RM0.335 (38.2% FR) before reaching our LT objective at RM0.36 (50% FR). Conversely, immediate supports are RM0.245 (14 May low) and RM0.24. Cut loss at RM0.225.

Source: Hong Leong Investment Bank Research - 17 May 2018