Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Dayang Enterprise Holdings
(Oct 5, RM1.52)
Maintain buy call with unchanged fair value of RM2.70: Over the weekend, The Edge weekly reported that Dayang may buy into Perdana Petroleum Bhd and ultimately emerge as a substantial shareholder.
Dayang announced to Bursa Malaysia on Tuesday that it has always explored avenues to enhance its business, including discussions with Perdana with a view to exploring potential collaboration between both parties. In fact, this potential collaboration could result in Dayang acquiring a strategic stake Perdana, but no agreement has been reached to date.
We had previously highlighted in our reports that Dayang is cash rich, with net cash of RM131.9 million as at June 2011, and has a stable and recurring income business. As such, we are not surprised the company plans to utilise the cash for mergers and acquisitions to expand its business, either vertically or horizontally.
Companies which are a potential fit for Dayang would include those with exposure in marginal oilfield services, or provide vessel support or own a fabrication or repair and maintenance yard, including foreign partners looking to venture into the Malaysian upstream oil and gas (O&G) sector. Tuesday's announcement indicates that discussions with Perdana are ongoing.
Assuming that a tie-up materialises, we see a synergistic fit between the two companies, although there may be some duplication of assets such as work boats. We understand that Dayang has four work boats which are now fully utilised.
Perdana, on the other hand, is experiencing a low utilisation rate on its four work barges and three work boats. Its core expertise is in deep water offshore support vessels (OSVs, 15 anchor handling tug supply vessel [AHTS]).'' As for the AHTS, having exposure to Perdana's fleet could fast-track Dayang's potential involvement in marginal oilfields in the future.
Dayang's book value stood at RM1.10 as at June 30. Based on yesterday's closing price of 61.5 sen, the share is trading at a price-to-book value (P/BV) of 0.6 times, which is attractive considering that most of its peers are trading at more than 1 times P/BV.
However, as mentioned in the announcement, most of Perdana's work barges and work boats are attached to short-term contracts that are expiring soon. As such, they would come in handy for Dayang. An agreement has yet to be reached and we are unsure of how much Dayang would be willing to pay for Perdana shares, or how much of Perdana its existing shareholders are willing to sell since any potential acquisition would have to involve a strategic stake. Based on The Edge report, Perdana's shareholders include Datuk Henry Kho Poh Eng and his brother Koh Poh Wat, who are both executive directors of Perdana and collectively own 9.3% equity interest in Perdana.
The other substantial shareholder is Sarawakian Datuk Tiong Su Kuok of Nam Cheong Dockyard Sdn Bhd, who has a 6.9% stake in the company. At 61.5 sen, Perdana's market capitalisation is about RM277 million.
Our fair value for Dayang remains unchanged at RM2.70 based on a price-earnings ratio of 13 times FY12 earnings per share. We continue to like the company's robust order book of over RM1.5 billion, which is enough to keep it busy over the next two to three years, and qualify it as a defensive O&G pick, which should enhance its profile in view of the currently weak investing environment. ' OSK Research, Oct 5
This article appeared in The Edge Financial Daily, October 6, 2011.
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
| Research House: OSK | Price Call: BUY | Target Price: 2.70 |
Dayang Enterprise Holdings
(Oct 5, RM1.52)
Maintain buy call with unchanged fair value of RM2.70: Over the weekend, The Edge weekly reported that Dayang may buy into Perdana Petroleum Bhd and ultimately emerge as a substantial shareholder.
Dayang announced to Bursa Malaysia on Tuesday that it has always explored avenues to enhance its business, including discussions with Perdana with a view to exploring potential collaboration between both parties. In fact, this potential collaboration could result in Dayang acquiring a strategic stake Perdana, but no agreement has been reached to date.
We had previously highlighted in our reports that Dayang is cash rich, with net cash of RM131.9 million as at June 2011, and has a stable and recurring income business. As such, we are not surprised the company plans to utilise the cash for mergers and acquisitions to expand its business, either vertically or horizontally.
Companies which are a potential fit for Dayang would include those with exposure in marginal oilfield services, or provide vessel support or own a fabrication or repair and maintenance yard, including foreign partners looking to venture into the Malaysian upstream oil and gas (O&G) sector. Tuesday's announcement indicates that discussions with Perdana are ongoing.
Assuming that a tie-up materialises, we see a synergistic fit between the two companies, although there may be some duplication of assets such as work boats. We understand that Dayang has four work boats which are now fully utilised.
Perdana, on the other hand, is experiencing a low utilisation rate on its four work barges and three work boats. Its core expertise is in deep water offshore support vessels (OSVs, 15 anchor handling tug supply vessel [AHTS]).'' As for the AHTS, having exposure to Perdana's fleet could fast-track Dayang's potential involvement in marginal oilfields in the future.
Dayang's book value stood at RM1.10 as at June 30. Based on yesterday's closing price of 61.5 sen, the share is trading at a price-to-book value (P/BV) of 0.6 times, which is attractive considering that most of its peers are trading at more than 1 times P/BV.
However, as mentioned in the announcement, most of Perdana's work barges and work boats are attached to short-term contracts that are expiring soon. As such, they would come in handy for Dayang. An agreement has yet to be reached and we are unsure of how much Dayang would be willing to pay for Perdana shares, or how much of Perdana its existing shareholders are willing to sell since any potential acquisition would have to involve a strategic stake. Based on The Edge report, Perdana's shareholders include Datuk Henry Kho Poh Eng and his brother Koh Poh Wat, who are both executive directors of Perdana and collectively own 9.3% equity interest in Perdana.
The other substantial shareholder is Sarawakian Datuk Tiong Su Kuok of Nam Cheong Dockyard Sdn Bhd, who has a 6.9% stake in the company. At 61.5 sen, Perdana's market capitalisation is about RM277 million.
Our fair value for Dayang remains unchanged at RM2.70 based on a price-earnings ratio of 13 times FY12 earnings per share. We continue to like the company's robust order book of over RM1.5 billion, which is enough to keep it busy over the next two to three years, and qualify it as a defensive O&G pick, which should enhance its profile in view of the currently weak investing environment. ' OSK Research, Oct 5
This article appeared in The Edge Financial Daily, October 6, 2011.
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