KUALA LUMPUR (Nov 22): Now is an opportune time to accumulate Dayang Enterprise Holdings Bhd (KL:DAYANG) shares given its undemanding valuations, said CGS International.
The research firm in a note on Friday said that at Dayang's current share price, it estimated that the market was “pricing in a 45% drop in its net profit in 25F-26”.
"...which we think is excessive. Earnings visibility has improved following the recent multi-year contract wins which has raised its order backlog to RM5.3 billion," the research house said.
"We see the 20% pullback from over the past three months as a good opportunity to accumulate," it said, reiterating it’s “add” call on the counter with a target price of RM4.
In Dayang's 9MFY2024 results announcement, normalised net profit was RM279 million (+114% year-on-year), which accounted for 85% of CGS' FY2024 forecast.
"Historically, 9M Patmi constituted 67-84% of full-year forecasts, as the work orders tend to be concentrated in 2Q and 3Q to avoid the monsoon season," it added.
The counter is well covered by analysts, with eight “buy” calls, and one “hold” recommendation.
At the time of writing, Dayang’s shares slipped three sen or 1.4% to RM2.15, valuing the group at RM2.5 billion.
CGS said the stock's valuations are also near its historical trough, at an ex-cash price to earnings ratio of 5.3 times, translating into a yield of 5.5%, on FY2025F, backed by a strong net cash balance sheet.
As of Sept 30, 2024 Dayang's cash balance stood at RM305.88 million, compared to RM271.9 million a year ago. Total non-current liabilities slid to RM112.15 million as at Sept 30, 2024 from RM196.66 million a year ago.
The research house also believes Dayang to be in a better position to withstand risks related to the "Petroliam Nasional Bhd (Petronas) and Petroleum Sarawak Bhd (Petros) saga" given its track record, Sarawak parentage and positioning in the more resilient brownfield segment.
While CGS did not elaborate, it is understood that Petronas and Petros are currently negotiating over the gas distribution agreement in Sarawak since the state, through Petros, took over as the sole gas distributor there.