Dayang has placed out the first tranche of 52.1m shares from the 82.1m proposed private placement.  It has raised MYR175.6m  proceeds, which we believe will be used to buy more Perdana’s shares. Dayang currently owns  26.6%  of  Perdana’s  shares,  given  the  recent  share  price weakness. We trim our TP to MYR4.52 from MYR4.80 (a 53.7% upside) in light of the enlarged share base and a larger stake in Perdana. BUY.

First tranche of placement.  The first tranche of the private placement proposed by Dayang  Enterprise (Dayang)  was completed on 1  Oct  for 52.1m shares. The initial proposal was to place out 82.5m shares, which is  10%  of  the  fully  paid-up capital  as  of 3  Sep  2014  –  the  date  of  the proposal. Note that the placement price was also set at MYR3.37 instead of the initial MYR3.69. The first tranche has raised MYR175.6m. 

Proceeds utilisation. In our 11 Sep 2014 report – Dayang Enterprise : 3 Possible  Ways  To  Use  Placement  Proceeds,  we  highlighted  three possible  scenarios that Dayang could utilise its proceeds:  i) accumulate more  shares  of  Perdana  Petroleum  (Perdana)  (PETR  MK,  BUY,  TP: MYR2.20),  ii)  ramp  up  capacity  for  engineering,  procurement, construction  and  commissioning  (EPCC)  jobs,  and  iii)  purchase deepwater-capable  marine  assets.  Dayang  has  been  slowly accumulating Perdana’s  shares  during the recent  market  selldown  and currently  owns  26.6%  of  Perdana’s  shares.  On  the  EPCC  bids,  we gather  from  our  channel  checks  that  Dayang  has  been  bidding  and preparing for an EPCC job related to  an enhanced oil recovery off the coast of Sarawak.

Maintain  BUY  with  a  lower  TP  of  MYR4.52.  In  light  of  the  enlarged share  base  and  a  larger  stake  in  Perdana,  we  update  our  model  and take the opportunity to lower  our TP to MYR4.52 (from MYR4.80), based on  a  16x  FY15F  P/E.  We  lift  our  earnings  forecast  marginally  and reiterate  BUY on Dayang,  which is a  local premier oil and gas service provider with an excellent track record, in our view. 

Current balance sheet.  To date, Dayang has 15.7m  of Perdana’s  shares for a total cost of MYR26m, implying that it currently owns 26.6% of Perdana’s shares. As of 30Jun  2014, Dayang had MYR80m in cash. With the proceeds from the first tranche, the company’s total cash stood at MYR255.5m. Having used some of the cash to buy Perdana’s shares, Dayang’s total cash should amount to MYR229.4m.

Yet to reach general offer  threshold.  Dayang currently holds 196.6m, or  26.6% of Perdana’s  shares.  To  get  up to  33%  or  243.6m  shares,  which  is  the  general  offer threshold, Dayang would need to buy 47m more Perdana’s  shares.  It  would need to fork  out  MYR75.2m  to  get  to  the  general  offer  threshold ,  based  on  Perdana’s  last closing price of MYR1.60 as of 3 Nov.

Why raise stake in Perdana?  Dayang currently utilises seven of Perdana’s vessels for its hook-up, construction and commissioning (HuCC) work. Dayang is also looking to  do  more  EPCC  jobs  which  we  believe  would  require  more  stringent  vessel specifications  than  those  of  the  current  HuCC  work.  Perdana’s  fleet  of  young  and modern  vessels will allow it to easily meet the stringent vessel  requirements in the near  to  mid-term.  Owning  Perdana  should  provide  Dayang  with  more  synergistic opportunities as well as potential cost savings.

Source: RHB