We expect PERDANA’s share price to sharply correct from its Sept-15 last traded price of RM1.54 upon relisting today after i) book value declined by 20% with accumulated RM160m losses in past 2 years, and ii) OSV peers trading at 0.2-0.5x PBV. Our fair value of RM0.25 is based on 0.4x PBV, implying 84% downside. Despite so, DAYANG’s 55% stake in PERDANA makes merely 16% (c. RM0.12) of our SOP. Still an OP call with TP of RM0.73 for earnings recovery play in FY18E.

Relisting of PERDANA! DAYANG’s 60.5% owned subsidiary, PERDANA (Not-Rated) announced that the company will resume trading today. Last Thursday, PERDANA announced that the public shareholding spread has been regularised to 20.016%, fulfilling Bursa’s requirement in which approval was granted to relist with a lower public shareholding spread following the completion of DAYANG’s 0.302:1 distribution of dividend in specie. Recall that PERDANA was suspended since 30 September 2015 (last traded at RM1.54/share) after the public shareholding spread was reduced to <10% upon the completion of the mandatory general offer by DAYANG.

Expect selldown on PERDANA. We expect the share price to be traded at much lower range from its last traded price of RM1.54 before its suspension after i) book value declined by 20% with accumulated RM160m losses in past 2 years, and ii) still tough prospects with below break-even utilization for FY17-18E and iii) OSV peers trading at 0.2- 0.5x PBV. Note that the reference price of PERDANA for the distribution of dividend in specie by DAYANG is set at RM0.96, equivalent to its FY16 BV/share. As of 3Q17, its BV/share has dropped further to RM0.72 due to its loss-making 9M17 results and RM50m impairment. As part of our DAYANG’s SOP valuation, we are valuing PERDANA at RM0.25/share pegged to 0.4x FY18 PBV which implies 84% and 65% downside to its last traded price of RM1.54 and its 3Q17 BV/share.

10% private placement is on-going. Following that, PERDANA is targeting to complete its 10% private placement within the next 6 months whereby the proceed will be used as working capital and repay borrowings. This would lower down DAYANG’s effective stake in PERDANA to 55%. PERDANA is expected to stay in the red for FY17 (9M17 core net losses at RM62m with an average utilisation rate of 53%). Moving forward, PERDANA is looking to improve its vessel utilisation to >80% premising on (i) the strategy tie-up with DAYANG, (ii) orderbook of RM237.7m (2-3 years visibility) and (iii) tenderbook valuing from RM270m-350m (14 new charter contracts ranging from 3 months to 5 years) in Malaysia and ASEAN region.

Maintain OUTPERFORM. Despite the expected downside pressure for DAYANG, its 55% stake in PERDANA makes merely 16% (c. RM0.12) of our SOP. With no changes in our SOP, we maintain our TP at RM0.73 (implying 11.8x FY18E PER and 0.7x PBV) ascribing: (i) 10x PER to its offshore TMS segment, and (ii) 0.4x PBV to its 55% owned PERDANA. All in, we reiterate our OUTPERFORM call on the counter premising on earnings recovery in FY18 backed by i) RM3.3b orderbook and ii) narrowed stake in loss-making PERDANA. Risks to our call: (i) weaker-than-expected HUC/TMM work orders, and (ii) prolonged downturn in OSV market.

Source: Kenanga Research - 18 Dec 2017