PETALING JAYA: HLIB Research has downgraded Dayang Enterprise Holdings Bhd to sell as it believed the market is currently pricing in much stronger earnings expectations which may not be sustainable.
Dayang’s share price had been on a rise since early February with a gain of 156% year-to-date, in line with strong buying in oil and gas stocks recently. today, the stock retreated 24 sen or 14.81% with 36.17 million shares changing hands.
Short selling of its shares was suspended today after its share price contracted by more than 15%.
Despite the “sell” call, HLIB Research increased Dayang’s target price to RM1.15 from 91 sen after adjusting the group’s FY19-20 earnings.
Dayang’s FY19-20 earnings have been revised upward by 26% and 12% to RM115.6 million and RM108.8 million respectively with more bullish assumption of variation orders (VOs) kicking in as well as better margins from the work orders received.
“Nonetheless, we reckon that share price may take a breathier in view of weaker quarter-on-quarter earnings and slower contract flow.
“Since our upgrade to buy in October last year, share price has delivered a peak return of 200% before declining 18% this week. We advocate investors to take profit on the stock,“ HLIB said in a report today.
Nonetheless, it said Dayang’s outlook remains solid underpinned by its RM2.9 billion orderbook and potential variation orders (VOs).
The exceptional strong performance in 4Q18 was mainly due to ramp up in offshore activities and additional work orders from existing contracts.
“However, we expect the gross margins to moderate from 57% in 4Q18 to 35-40% range in FY19 even after factoring approval of outstanding VOs.”
Apart from existing contracts, Dayang is expected to receive additional lump sum work orders from clients.
“We understand there are also some VOs that have been carried out last year. All the VO costs have been recognised last year and its profits will be booked in 1HFY19, pending client approval,” HLIB Research added.
