News  DAYANG is proposing a private placement of up to 10% of its current issued and paid-up capital.

 The private placement will result in 82.5m new shares being raised; enlarging the share capital to 907.5m shares.

 The deal is expected to be completed within six months from the date of Bursa Securities' approval on the proposed private placement.

Comments  We were slightly surprised by the news as we were not aware that DAYANG was pursuing new projects.

 Moreover, its debt as at 2Q14 only stands at RM162.0m; lower than the current proceeds of RM304.4m (based on indicative price of RM3.69) targeted to be raised in this placement.

 For now, assuming that there are no upcoming projects, there is an estimated FY14-15 EPS dilution of 9.1%.

 However, we expect a bigger plan in play given that Dayang is traditionally a conservative company.

Outlook  Management foresees better 2H14 prospects as the Shell and Carigali’s HUC contracts will gain traction.

 Order book currently stands at RM4.5b.

 It is also a beneficiary of any improvements in associate PERDANA and its 2Q14 results have proven satisfactory as well.

Forecast  We maintain our forecasts for now pending the completion of the proposed private placement.

Rating Maintain OUTPERFORM

Valuation  We maintain our target price of RM4.82 based on unchanged target PER of 16x on FY15 EPS.

 Our PER is at a 0.5x premium to the PER ascribed to PERDANA as we believe DAYANG deserves a premium for being a turnkey hook-up commissioning player with Petronas.

Risks to our Call (i) A downturn in the oil & gas sector that could result in delays in contract rollouts, (ii) delay in the Pan-Malaysia HUC project, which will reduce the potential earnings being recognised in the year, and (iii) lower-than-expected margins.

Source: Kenanga