While the group had posted strong 4Q18 results, which were lifted by lump-sum work orders, Streets believe such outperformance is unlikely to be repeated. Meanwhile, Streets also believe its upcoming corporate exercises could dampen sentiment.
Dayng posted an exceptionally stronger set of 4Q18 results – more than double QoQ from 3Q18, which is typically a stronger quarter, and rebounding from YoY losses in 4Q17. In fact, 4Q18 results were exceptionally strong that it contributed 57% of its full-year FY18 earnings.
Following this, its share price shooting up by 215% since its 4Q18 results announcement last month.
But, is 4Q18 earnings performance sustainable? All of the quarter’s topside maintenance revenue came from “lump-sum” billings, as compared to the more conventional “schedule of rates” billings.
The lump-sum work orders arises when (i) there is a specific or urgent work request from the client for packaged maintenance or overhaul services, as opposed to the more usual scheduled maintenance works, or (ii) successful billings of variation orders. That said, while there is still a possibility for lump-sum work orders in the coming quarters, observers believe it is unlikely that it will be at the record-high levels seen in 4Q18.
In fact, Streets expect 1Q19 to post more “normalised” levels of profits, on the back of it also being a seasonally weaker quarter given the monsoon season.
Under the assistance of the CDRC of Bank Negara Malaysia, Dayang’s 60.5%-owned listed subsidiary Perdana has hinted of an impending comprehensive corporate exercise to be completed within the next 12 months from March 2019.
This is referring to its Proposed Debt Restructuring Scheme (PDRS) for the CDRC, which may include extension of borrowings, disposal of assets, special issues or placement of shares, and rights issue. Depending on the scheme, there may also be a need to further impair the group’s assets.
That said, it is believed that an upcoming comprehensive corporate restructuring may implicate shareholders of Dayang and as taking lessons from other oil and gas companies that had undergone corporate exercises in the past (e.g. SAPNRG, VELESTO), this also may not play well for the stock’s trading sentiment and share prices.
At RM1.20 is based on 1x PBV in-line with its mean valuations.
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