Destini reported a huge net loss of RM237.3m in 4QFY19

Destini reported a huge net loss of RM237.3m in 4QFY19 (versus net profits of RM1.6m in 4QFY18 and RM0.7m in 3QFY19) attributable to: (1) lower revenue from the aviation and MRO sectors as well as lack of orders in marine manufacturing; (2) escalation in costs of manufacturing services due to extension of project delivery; (3) higher interest expense due to impending decision on the continuity of the MD530G helicopter project; (4) provisions; and (5) impairment of assets and goodwill amounting to RM145.2m.

Excluding exceptional items, FY19 core net loss amounted to RM89.7m

Excluding exceptional items (including the goodwill and asset impairment), Destini recorded a core net loss of RM92.7m in 4QFY19 and RM89.7m in FY19. After the group reported a ore net profit of RM2.4m in 9MFY19, we had expected RM5.2m for the whole financial year. No dividend has been declared (FY18: nil).

Some bright spots

While the operating performance in FY18 and especially FY19 are disappointing, there are some positive developments ahead. The Malaysian government had on January 15 this year given approval for Destini to continue executing the remaining contract obligations with the MD530G program and all six helicopters are scheduled to be delivered this year. Increase in oil & gas activities also bode well for the marine services as well as tubular running and decommissioning businesses. The group is also venturing into port operations in Kalimantan, Indonesia. Eighty million of the 231.05m new private placement shares have been issued and further placements will help to further reduce borrowings and boost working capital of the group.

Cutting FY20F core net profit forecast and introducing FY21F estimates

We have trimmed our FY20F core net profit forecast by 10.2% from RM19.7m to RM17.7m after cutting revenue assumption from RM410.0m to RM380.0m. The group is not expected to pay any dividend in FY20F. We are also introducing our FY21F core net profit estimate based on a higher revenue of RM400.0m and improved margin assumptions.

Share price has fallen to RM0.18, maintain BUY with a lower TP of RM0.22

Pegging an unchanged PE target of 17.1x on our revised FY20F EPS forecast of 1.3 sen (1.4 sen previously) based on the enlarged issued share capital of 1,386.3m shares after the private placement, target price for Destini is set at RM0.22 (RM0.25 previously). Destini’s share price has fallen further to RM0.18 and at current level we maintain our BUY call. Based on the enlarged issued share capital of 1,180.2m shares as at end-4QFY19, NAV per share and NTA per share stood at RM0.23 and RM0.14 respectively. As Destini is still largely dependent on government contracts, further clarity in the domestic political landscape will have positive impact on its profit prospects. A key risk is the expanding coronavirus contagion which if prolonged and worsened, will further impact economic growth prospects and government budgetary allocations.

Source: Mercury Research - 2 Mar 2020