News  Dayang Enterprise Bhd (DAYANG) has announced that it is proposing a 1-for-2 bonus issue which could result in up to 275m new shares being issued.

 DAYANG’s rationale behind the proposed bonus issue is to: (i) reward the existing shareholders for their continued support and loyalty; and (ii) enhance the liquidity of the shares.

 DAYANG hopes to complete the proposed exercise by 1Q14.

Comments  We are positive on the exercise given that it will improve the trading liquidity of the stock.

 Assuming a maximum scenario of new 275.0m shares issued, DAYANG’s share base will increase by 50% to 825m shares.

Outlook  DAYANG’S longer-term prospects are strong given that c.77% of its orderbook (RM4b) extends to 2018.

 Any improvement in PERDANA’s earnings will have a positive bottom-line impact on DAYANG through associate earnings contributions.

 Any margin expansion for its new projects (we have assumed a discount to its historical EBIT margins earned on its previous topside maintenance projects) will also provide a further catalyst to DAYANG’s earnings.

Forecast  No changes to forecasts as the bonus issue has no impact on our forecasts.

Rating Maintain OUTPERFORM

Valuation  We keep our target price unchanged at RM6.15/share, based on FY14 15x PER. Ex-bonus issue, the target price will be RM4.10/share.

Risks  1) A downturn in the oil & gas sector that could result in delays in contract rollouts; 2) delay in the Pan-Malaysia HUC project, which will reduce the potential earnings being recognised in the year and 3) lower than expected margins, which will also affect its earnings growth.

Source: Kenanga