Dayang: The rapid price recovery is reassuring

Koon Yew Yin 26 March 2020 

The 5 months price chart shows that the price was Rm 2.95 on 20 Feb 2020 and just within 5 weeks, it plunged to 72sen on 20 March 2020. 

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In the last few days, the price has gone up from a low of 72 sen to close at Rm 1.04, a rise of 32 sen or 44 %. This is a very good sign. It indicates the worst is over. 

No share can drop continuously for whatever reason. After sometime it will change its trend. It looks like the pivoting point was 72 sen and most likely it will continue to go higher and higher to recover some of the losses. 

What is the real cause?

The real cause for the plunge is not due to the Coronavirus pandemic which started in Wuhan about 4 months ago. While thousands of Chinese were dying in Wuhan, Dayang was going up higher and higher to peak at Rm 2.95. 

The real cause was our own Malaysian political upheaval. Dr Mahathir Mohamad’s resignation as Malaysia’s Prime Minister on 24 February 24 2020 led to the collapse of the elected Pakatan Harapan Government. The legitimate Government was unceremoniously removed. Then he formed a new group of Members of Parliament to form a new Government. Then Muhyiddin was sworn in on 1 March as PM with the support of MPs from the previous   corrupted Barisan National Government.  

All these political twists and turns of political   uncertainties caused the stock market to plunge. Almost all the listed shares were badly affected. 

Force selling

In the case of Dayang, the rapid price drop caused force selling to meet margin calls. The more the price dropped the more would be force selling-thus creating a vicious cycle. 

The oil price slump will not affect Dayang. 

Many investors are worried that the current oil price slump will badly affect Dayang’s business and reduce Dayang’s profit. No! it will not! In fact, the oil price slump is good for Dayang’s business. Unlike Hibiscus, Dayang is not involved in the oil extraction. It is only oil rig maintenance contractor. 

In fact, when the oil price slumps, Petronas will have to pump more oil to support Malaysia’s economy and award more oil rig maintenance contracts to Dayang which is the largest and most efficient contractor in the field. In this region where Petronas has about 100 Offshore oil rigs, it looks like Dayang has the monopoly in this business.

Dayang has very good profit growth. 

2018 revenue Rm 937 million and EPS 17.2 sen 

2019 revenue Rm 1,046 million and EPS 24.3 sen

The current price Rm 1.04 divided by 24.3 = 4.2 P/E ratio. 

Can you find another share with similar good profit growth prospect as Dayang, selling at P/E 4.2 ???   

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