Dayang to post more ‘normalised’ levels of profits for 1Q19
KUCHING: Dayang Enterprise Holdings Bhd ( Dayang) is projected to post more ‘normalised’ levels of profits for the first quarter of 2019 (1Q19) despite an exceptionally strong 4Q18.
The research arm of Kenanga Investment Bank Bhd ( Kenanga Research) saw that Dayang’s 4Q18 results were exceptionally strong as it contributed 57 per cent of the group’s earnings for the full financial year 2018 (FY18).
“Fol lowing this, trading sentiment for the stock turned immensely bullish, with share price shooting up by 215 per cent since its 4Q18 results announcement last month,” Kenanga Research said.
According to the research arm, all of the quarter’s topside maintenance revenue came from “lump-sum” billings, as compared to the more conventional “schedule of rates” billings.
“As we understand, lump-sum work orders arises when 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 successful billings of variation orders.
“That said, while there is still a possibility for lump-sum work orders in the coming quarters, we believe it is unlikely that it will be at the record-high levels seen in 4Q18.
“In fact, we expect 1Q19 to post more ‘normalised’ levels of profits, on the back of it also being a seasonally weaker quarter given the monsoon season.”
On another note, Kenanga Research highlighted that under the assistance of the Corporate Debt Restructuring Committee (CDRC) of Bank Negara Malaysia, Dayang’s 60.5 per cent-owned listed subsidiary Perdana Petroleum Bhd has hinted of an impending comprehensive corporate exercise to be completed within the next 12 months.
The research arm further highlighted that 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, we believe 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, for example Sapura Energy Bhd and Velesto Energy Bhd, we believe this also may not play well for the stock’s trading sentiment and share prices.”
Overal l , whi le Kenanga Research still liked Dayang for the group’s outstanding management, on top of its improved outlook, especially compared to two to three years’ ago when it was incurring losses, the research arm believed the recent share price rally could have been overplayed.
“Hence, we are ascribing a tactical ‘ underperform’ call, advocating a ‘take-profit’ or ‘sellon-strength’ strategy to realise gains from this recent rally.”