Yesterday, Dayang revealed an MGO to acquire the remaining shares of Perdana Petroleum that it does not own. Maintain BUY and MYR3.40 TP(29% upside). Having full ownership of a synergistic partner/quality vessel player will enable it to solidify the execution of its long term HUC service contracts and transform the company into an integrated, regional service player.

• An acquisition in two phases. Dayang Enterprise (Dayang) plans to incur MYR67m to purchase 43m Perdana Petroleum (Perdana) (PETR MK, BUY, TP: MYR1.53) shares from a non-government-linked fund, boosting shareholdings to 35.5% from 29.8%. Next is a mandatory general offer (MGO) for the rest. Both phases have a MYR1.55/shareoffer price and the MGO will also offer to purchase remaining warrants at MYR0.84/warrant. It plans to fund the deal with an additional ~MYR700mborrowings, ~MYR152m in unutilised proceeds from a recent private placement (52m shares at MYR3.37/share) and internal funds.
• Financial impact. The MYR1.55 offer price translates intoFY15F/FY16F 13x/10x diluted P/Es and 1.6x/1.3x P/BVs respectively. Assuming full acquisition, we estimate 8-13% accretion of Dayang’s FY15F/FY16F EPS to MYR0.26/MYR0.31, assuming 6% finance costsand adding 70% of Perdana’s MYR91m/MYR125m earnings respectively. Net gearing may surge to 1.2x vs Dayang’s historical average (net cash to 0.2x) as it has to assume Perdana’s borrowings. We believe the balance sheet is manageable, backed by Perdana’s high utilisation (12 out of its 16 vessels are on long-term contracts).
• Rationale. 5-6 Perdana vessels are already utilised for Dayang’s longterm hook up and commissioning (HUC) contracts. We deem the offer fair, as having full ownership of the vessel player will enable it to have management control and solidify its execution ability for those contracts. Dayang can transform into an integrated, regional service player as Perdana’s young vessels are competitive regionally. It may also benefit from cost synergies with management control over vessel operations –an integral part of its HUC service offerings.
• Maintain BUY, MYR3.40 TP at an implied 14x FY15F P/E. We like its size as a premium HUC player and long-term earnings visibility till 2018,driven by its MYR4bn orderbook. Assuming earnings accretion based on our earlier scenario of full acquisition and excluding synergy benefits, Dayang’s TP could be raised to MYR3.70 (see Page 2). For now we expect Perdana’s listing status to be retained