News

Yesterday, DAYANG’s subsidiary PERDANA proposed a sukuk issuance up to RM650m.

The first issuance will be guaranteed by Danajamin Nasional Berhad pursuant to an Al-Kafalah Facility.

An amount up to RM630m will be used for refinancing of outstanding borrowings undertaken for purchase of the certain charged vessels and RM20m will be used to defray the fees and related expenses for the sukuk issuance.

The unutilized balance, if any, will be used as working capital subject to a maximum amount of RM40m.

Comments

This is not a surprise to us as management had already guided the sukuk issuance earlier and aim to complete the issuance by April this year.

We gather that the sukuk is rated AAA and has an initial tenure of 5 years but is extendable up to 12 years.

Post sukuk issuance, the interest rate is expected to stay the same at 6% but refinancing of the USD denominated loan will reduce their foreign exchange risk in the future given that PERDANA’s revenue is mainly denominated in ringgit.

Furthermore, we believe this will also improve their short-term cash flow position as DAYANG will only have to pay RM90.0m p.a. for the first four years (vs. RM209.9m of short-term borrowings in 4Q15) and the remaining RM290.0m to be repaid at the end of fifth year.

Outlook

Order book stood at RM3.8b in 4Q15, expected to last until 2018.

We foresee DAYANG’s earnings to come under pressure after consolidating PERDANA into the group in the near-term in view of the challenging local OSV market with demand likely to come off as O&G activities are slow at this juncture.

DAYANG aims to turn around PERDANA by reducing its breakeven utilisation, vessel redeployment and other cost optimisation measures.

Timing risks are still present for its HUC projects, which account for a significant portion of the group’s revenue contribution as its oil majors clients seek to defer contracts partially to later years in lieu of uncertainty in crude oil prices.

Forecast

We maintain our forecasts.

Rating

Maintain MARKET PERFORM

Valuation

TP is maintained at RM1.43 which is pegged to CY16 10x PER.

Risks

(i) Slower than expected work orders for HUC contract, and (iii) lower-than-expected margins.

Source: Kenanga Research - 16 Mar 2016