DESTINI’s prices slid 22.5% from YTD high of RM0.355 to RM0.275 yesterday following a sluggish FY18 and 1Q19 results amid delays in the government related jobs post GE14 and subdued oil & gas projects. However, the stock now provides an attractive risk-reward profile at 11.3x FY20E P/E (-47% discount to its closest peer, Singapore’s ST Engineering and 58% below its 10Y mean) and 0.63x P/B (51% below its 10Y mean), underpinned by its high-barrier-to-entry integrated MRO business model, strong orderbook of RM1.3bn, a resumption in government-related jobs flows and increased oil & gas activities due to rebound in oil prices. Technically, DESTINI is poised to retest RM0.295-0.33 upside targets following recent positive downtrend line breakout.

An established MRO service provider with global presence. DESTINI started off as an aviation tool and spare parts trading company supplying for the defence industry. Destini is currently one of the leading maintenance, repair, overhaul (MRO) service providers in the country focusing primarily on four primary sectors ie marine (59% to FY18 revenue), aviation (20%), oil & gas (11%) and land transport (10%). Over the last two decades, DESTINI has expanded its geographical footprint over the Asian, Australian, Middle East and European regions.

More jobs flows from oil & gas segments. As at Mar 2019, DESTINI’s secured order book stood at RM1.34bn, which may sustain the Group for the next three years. The highest contributor to this figure comes from the Group’s oil and gas business segment which gained confidence from improved oil prices. Decommissioning is expected to be a major contributor to the company in the coming years as oil majors begin to embark on their well abandonment and decommissioning programmes. Petroliam Nasional Bhd’s (PETRONAS) in its “Activity Outlook Report 2019-2021” has guided a bullish decommissioning programme for the next three years while a report by Wood Mackenzie estimates up to USD100bn worth of decommissioning jobs in the Asia-Pacific region in the coming decade.

JV to bid for more rail projects. Meanwhile, following the revival of mega projects such as ECRL and HSR, Destini has set up a JV in April to bid for rail projects in Malaysia and the region.

Positive downtrend line breakout. After tumbling 32.4% from YTD high of RM0.355 (18 Mar) to a low of RM0.24 (29 May), DESTINI has been trending sideways before staging a downtrend line brekaout to close at RM0.275 yesterday. Given the successful breakout (near RM0.265 or 50D SMA) and closing above the crucial 200D SMA (near RM0.25), DESTINI is ripe for further recovery towards RM0.295 (50% FR) and RM0.31 (61.8% FR) levels before reaching our LT objective at RM0.33 (29 Apr). Conversely, failure to hold at RM0.265 and RM0.26 (10D SMA) will witness a retracement back towards RM0.205-0.215 levels. Cut loss at RM0.25.

Source: Hong Leong Investment Bank Research - 16 Jul 2019