Dayang: Fundraising exercise

On 17 May the company made the following announcement:

1 Proposed renounceable rights issue of up to 96,480,983 new ordinary shares in Dayang (“Dayang Shares” or “Shares”) (“Rights Shares”) at an issue price to be determined later on the basis of 1 Rights Share for every 10 Dayang Shares held at an entitlement date to be determined later (“Proposed Rights Issue”);

2 Proposed private placement of up to 96,480,983 new Dayang Shares (“Placement Shares”), representing approximately 10.0% of the total number of issued shares of Dayang (“Proposed Private Placement”);

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3 Proposed subscription of new redeemable convertible preference shares (“RCPS”) of up to RM455.0 million in Perdana Petroleum Berhad (“PPB”) at the entitlement basis and issue price to be determined later pursuant to the proposed rights issue of RCPS to be undertaken by PPB (“Proposed Subscription”)

Soon after the above announcement, on 22 May, the company announced a small loss in its 1stquarter ending March 2019 due to monsoon which had affected its maintenance operation in the open sea. As a result, the price plunged to 90 sen per share.

Since then the above chart shows that it has been going up from 90 sen to about Rm 1.50 with 2.5 months in spite of the 2 announcements.

The daily volume change hands is several million shares. The price continues to go higher and higher because there must be more buyers than sellers. The buyers can appreciate the fund-raising exercise. Unfortunately, the sellers do not understand why the company needs to raise more money to do more business.

Why did they sell their shares?   

1 They believes that the controlling shareholders would press the price down so that they can buy the right issues (1 for 10) at cheaper prices.

2 They also believe that the controlling shareholders would press the price down to help the Sarawak Government to buy the placement shares of about 96 million shares.

My opinion:

  1. After I have studied the details of the company’s operation carefully, I believe the next quarterly announcement should be good. It will be made before the end of the month. Dayang has the more maintenance contracts in terms of value from Petronas than any of his competitor because Petronas and the Sarawak Government are shareholders of Dayang. Moreover, I have not seen any reasonably good company’s share price dropped when the company announced good profit. In any case, readers should wait for another 3 weeks to see the good result.
  2. From my long experience as IJM Corporation Bhd director, all company directors have the duty to make profit for the company so that the share price can go up higher and higher to benefit the shareholders. All the shareholders are the owners of the company. In other words, the shareholders are paying the salary or fees to all the company directors. The controlling shareholders or directors should want the share price to be higher and not lower.  
  3. Since the Sarawak Government is the buyer of the 96 million placement shares, the controlling shareholders or directors should want to sell the placement shares at a higher price and not at a cheaper price.
  4. This reminds me when I was on the IJM board of directors. As I said, our duty was to make money for the company; but we should not simply distribute all the money to the shareholders because the company could use the money more effectively to do more business to make more money. As a result, IJM’s share price continue to go higher and higher. About 25 years ago, IJM issued shares to acquire Road Builders which had a lot of land in Negri Sembilan. IJM is now developing Seramban Phase 1 and 2 to make more money. The land value has gone up in the last 25 years because it is very near to Kuala Lumpur. I trust you can see why the IJM directors or Dayang directors wanted a high share price. Currently, I think  IJM has more land than any of its competitors in Malaysia.
  5. As I said earlier, the price has been going up from 90 sen to Rm 1.50 within 2.5 months. The price chart is showing a super bullish trend. Only ignorant investors who did not know how to read chart, would sell their shares so quickly. They will regret when they see the company make a good profit announcement in about 3 weeks’ time.     

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