While we believe Dayang could reap long term benefit from the stronger balance sheet post debt restructuring, share prices, however, could remain under pressure due to its EPS dilution amidst unexciting quarterly results. After imputing interest savings, we increase FY19-20 earnings forecast by 2%/7% respectively but FY19-20 EPS are diluted by 15%/12% with 20% share base enlargement post rights and private placement. Keep SELL rating with lower ex TP of RM1.02 (from RM1.15) based on SOP valuation.

NEWSBREAK

Dayang has announced its debt restructuring plan. As a start, Dayang will issue RM682.5m sukuk to (i) repay Dayang’s RM317.5m loan; and (ii) fund an advance payment for its 60.5%-owned unit Perdana (not rated) to repay RM365m of borrowings. Dayang will also advance RM90m cash to Perdana for further debt repayment. In return, Dayang will subscribe up to RM455m of new redeemable convertible preference shares (RCPS) in Perdana pursuant to Perdana’s proposed rights issue of RCPS. Dayang also proposed (i) to issue up to 96.5m rights shares (1 for 10 shares; issue price to be determined later); and (ii) a private placement of up to 96.5m (10% of existing shares). The proposed exercises are expected to be completed by end-FY19 subject to shareholders and relevant regulators’ approval.

HLIB’s VIEW

For a better Perdana. To facilitate the debt restructuring, Perdana will issue RCPS to raise minimum proceeds of RM455m, or up to a maximum of RM506m if it is being fully subscribed. The issue price of RCPS will be determined later. It has tenure of 10 years with a conversion ratio of 1:1. We believe the proposal is essential to Dayang to avert Perdana which is already in admission to Corporate Debt Restructuring Committee (CRDC) from a financial default. Note that Dayang is the corporate guarantor for Perdana’s debt and has been supporting the latter’s sukuk debt repayment in the past three years. Post restructuring, Perdana’s net gearing level will decline to 0.15x from 1.30x as of end-FY18.

Impact to Dayang. Dayng’s share base will be enlarged by 20% to 1.16bn post rights and private placement. Assuming rights issue price of RM0.80 (32% discount to the TERP of RM1.19 based on 5-day VWAP of RM1.23 as stated in the announcement), bulk of the RM77.2m gross proceeds will be used to repay borrowings. The rights have been fully underwritten by undertaking shareholders and underwriters. Meanwhile, the private placement proceeds will be used as the sinking fund for the proposed sukuk programme, capex and working capital purposes. Post restructuring, Dayang’s net gearing will decline to 0.61x from 0.77x as of end-FY18 and generate interest savings of RM6.6m/annum.

Forecast. After imputing interests savings, we increase FY19-20 earnings forecast by 2%/7% respectively. However, due to share base enlargement, FY19-20 EPS are diluted by 15%/12% to 10.2 sen and 9.9 sen, respectively.

Reiterate SELL, TP lowered to RM1.02 on ex-rights basis. Post adjustment, TP is lowered to RM1.02 (from RM1.15) on an ex-rights basis (RM1.04 on a cum right basis) based on SOP valuation (9x FY19 PER for TMS segment and 0.3x PBV for OSV segment). While we believe Dayang could reap long term benefit from the stronger balance sheet post debt restructuring, we keep our SELL rating due to short term overhang from corporate exercise and potential QoQ weaker quarterly results.

Source: Hong Leong Investment Bank Research - 21 May 2019