Dayang: Intelligent investors versus ignorant investors

Koon Yew Yin 22 Feb 2020 

Since Dayang’s announcement of reduced profit in its 4^thquarter for financial year 2019, many ignorant investors will rush to sell their holdings on Monday. Some people told that they would rush to sell their holdings because the company made less profit in the 4^th quarter than in the 3^rd quarter and they are afraid the company will continue to make lesser profit. 

Many people have asked for my advice. I had to explain to them that they must look at its 2019 annual profit in comparison with its previous year as shown on the table below. 

In 2918 its annual revenue was Rm 936 million and its annual net profit for shareholders was Rm 165 million. It also reported increasing profit for each of the 4 quarters. 

In 2019 its annual revenue was Rm 1,448 million and its annual net profit for shareholders was Rm 236 million. Although the company’s revenue and net profit for shareholders are better than 2018, unfortunately, it is not showing increasing profit for each of the 4 quarters. Its latest 4^thquarter result announcement of reduced profit   will depress the share price because many ignorant or less informed investors will rush to sell their holdings on Monday. They do not look at the overall annual profit which is better than the previous year.  

Record profit

In fact, the company posted a record net profit for the financial year ended Dec 31, 2019 because of higher profit margin on work orders received and performed during the current financial year.

Dayang posted a net profit of RM236.28 million, up 43.9% from RM164.22 million in the previous year. 

Revenue grew 11.6% to RM1.05 billion in FY19 – exceeding the RM1 billion mark for the first time – from RM937.64 million in FY18.

It had completed its right issue of 1 new share at 92 sen to every 10 shares held by shareholders. It also had completed Perdana’s fund raising exercise. The company should be able to produce better profit in the coming years. I believe after the completion of the group-wide debt restructuring, Dayang is now ready to embark on long-term growth plans to further maximise shareholder value given its more efficient capital structure.

As at Dec 31, 2019, Dayang’s order book stood at RM4.5 billion, which will keep it busy until 2023.

Intelligent Investor  

The current situation of Dayang reminds me of the book I read long ago called “The Intelligent Investor” by Benjamin Graham who wrote it in 1934. The book teaches you how to focus on the long-term health of a company. This is a simple, but effective way to limit your risk. 

The book “Intelligent Investor” is 1,100 pages long and it is hard to read for the first time. However, the teachings of Benjamin Graham are the fundamentals which guided many leading investors such as Warren Buffett and Vanguard Group Founder John Bogle.     

An intelligent investor always analyzes the long-term evolution and management principles of a company before investing. An intelligent investor always wants to protect himself from losses by diversifying investments. 

My advice to investors:

I have been searching for another stock with similar profit growth prospect as Dayang in vain. I cannot find one. As long as there is oil in the ground, Petronas will continue to pump and Dayang will be able to secure more and more oil rig maintenance contracts because its closest rivals, Carimin and Uzma are relatively small and inefficient. It looks like Dayang is holding the monopoly in this type of business. 

Investors must realise that Dayang must be really good otherwise its share price cannot continue to make new high. It made a new high at Rm 3.01 yesterday. There are so many ignorant investors who sold their holdings earlier and they must be regretting for their mistake. I am sure they cannot find another stock with similar profit growth prospect which is the most powerful catalyst to move share price. 

On Monday, we all can watch the fight between  the intelligent investors versus ignorant investors.