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Destini Bhd - 1QFY18 - Stronger quarters ahead, forecasts maintained

Yoy, 1QFY18 revenue and net profit declined by 38.5% and 22.9% respectively
Destini’s 1QFY18 revenue and net profit declined by 38.5% and 22.9% to RM137.6m and RM7.7m respectively compared to 1QFY17 mainly due to lower contributions from the aviation manufacturing business, i.e. the helicopter supply contract, which is scheduled for delivery in 4QFY18.

Qoq, 1QFY18 revenue and net profit increased by 27.4% and 37.1% respectively
Sequentially, 1QFY18 revenue and net profit increased by 27.4% and 37.1% due to stronger MRO services billings which more than offset lower contributions from the aviation manufacturing business.

LHDNM withdrew Writ of Summon and Statement of Claim
Destini also announced that Lembaga Hasil Dalam Negeri Malaysia (LHDNM) has withdrawn its Writ of Summon and Statement of Claim (for outstanding tax payable amounting to approximately RM6.6m) and the High Court has awarded RM2,000 to Destini as cost.

Stronger quarters ahead on the back of on-going, new and potential projects
While the 1QFY18 net profit of RM7.7m constitute just 20.8% of our full year FY18F forecast of RM37.1m, we expect stronger quarters ahead on the back of on-going and new projects as well as prospective projects in its tender book.

Outstanding order book is estimated to have surged past RM1.0bn again
With the contracts secured in the last two months, we estimate that outstanding order book of the group has again surged past RM1.0bn, from around RM930m in January 2018. New contracts secured include the additional RM138.0m on top of the existing contract to provide MRO services and the supply of safety and survival equipment to the Royal Malaysian Air Force, an umbrella contract for the provision of well abandonment integrated services for PETRONAS Carigali SB, and the tubular running services contract valued at approximately RM31.8m in Pakistan. Stronger oil prices have also boosted the businesses of the Vanguard Group and TF Corp Group as well as AMS Marine (S) Pte Ltd. Destini has also secured additional certifications for the provision of line maintenance for commercial airlines. These and outstanding contracts for the provision and supply of MRO services, helicopters and OPVs are expected to boost profitability in the coming quarters.

Bidding for more contracts
Furthermore, Destini has a large tender book both locally and overseas. It has entered into a MOU with Felcra Processing & Engineering SB (FPESB) to provide MRO services to all FPESB’s industrial plants and equipment as well as building maintenance services on industrial, commercial and residential properties owned by FPESB. Other potential contracts include offering safety survival MRO services to more government agencies; full ground handling services for civilian airlines; MRO and supply of more helicopters as well as building more OPVs and NGPCs; offering rail MRO services and the supply of rolling stocks and spares; and in O&G, expanding decommissioning services and fabrication for the downstream sector.

Proven capability and track record of timely delivery at competitive pricing
We continue to like Destini for its proven capability and timely delivery of services at competitive pricing, strengths which are important to a new government facing budgetary constraints and which emphasize efficiency and transparency. Its balance sheet remains strong with a healthy cash balance and minimal gearing.

Maintain BUY with an unchanged target price of RM0.70
We maintain our FY18F and FY19F forecasts and price target of RM0.70 (pegged to an unchanged CY19F PE of 17.1x) for Destini. Its share price has fallen further following the change in government after the recent GE14 and global equity market volatilities. Our BUY rating is maintained.

Source: Mercury Research - 31 May 2018