Investment Highlights

• We initiate coverage on Dayang Enterprise Holdings (Dayang) with BUY recommendation at a fair value (FV) of RM3.80/share, based on FY26F P/E of 14x – at par to the local oil & gas (O&G) maintenance contractors’ average as we believe the group is the ideal proxy to the industry’s rerating upcycle. Our FV implies a neutral 3-star ESG rating based on our in-house methodology.

• Dayang is a local O&G contractor involved in the provision of maintenance services, particularly: (i) maintenance, construction and modification (MCM); and (ii) hook-up and commissioning (HUC). The group is also a provider of offshore support vessel (OSV) services with a fleet size of 20 assets consisting of anchor handling tug supply ships (AHTS) and accommodation work boats/barges (AWB).

• As at 31 March 2024, the group currently has an outstanding orderbook of RM1.7bil, which translates to a comfortable 1.3x FY24F revenue as Dayang’s strong tender pipeline will sustain its robust growth prospects. This is underpinned by a limited pool of service providers with adequate technical and financial capabilities that have withstood the past industry downturns while financial institutions remain wary of lending to the sector against governmental net-zero carbon emissions policies.

• Premised on Petronas’s commitment towards its 5-year (2023- 2027) capex spending plan of RM300bil, we expect to see a general recovery within the industry amidst the rise in exploration and production activities, backlog of maintenance works and a tight vessel supply environment. We believe this will translate into a 3-year (2024-2026) earnings CAGR of 17%,

• For reference, our forecasts are mainly based on the following assumptions:
  
  a. Orderbook replenishment of RM3.5bil by 4QFY24 with extended contracts;
  
  b. Full-year daily charter rates (DCR) of RM90k for AWB and RM50k for AHTS, and
  
  c. Vessel utilisation rates of 60%-65%.

• We see Dayang as a leading beneficiary of the O&G capex upcycle due to its established presence and track record with key client Petronas and other Petroleum Arrangement Contractors (PACs).

• Though the group’s share price has seen a significant run-up YTD of 62%, we believe there is further upside as it currently trades at a 2-year forward PE of 9.6x, which translates to a compelling 31% discount to the peer average.

Source: AmInvest Research - 13 Jun 2024