Daya’s full year FY13 performance took an unexpected dive in 4Q, attributed to the cost overrun in the cable laying project which was largely completed in October 2013. YTD revenue recorded RM513.5m (+85% YoY) while earnings plunged to RM3.4m (-83% YoY). Management has reassured that the cost overrun issues have been fully accounted for this quarter and hence will start their FY14 balance sheet on a clean slate. Despite our disappointment to this quarter’s unfavourable outcome, fundamentally based on the prospect of Daya’s O&G segment in particular, its vessel chartering will provide growth for the Group going forward. We are maintaining our Outperform call on Daya with an unchanged TP of RM0.43 based on 12x multiple to its FY14 EPS of 3.7 sen.

Dragged by Oil and Gas (O&G).From what we understand, Daya initially recorded higher profits YoY, however due to the cost overrun issue from the cable laying project, a revision had to be made to the profit margin. Albeit this incident, O&G will contribute significantly going forward, premised on i) the LT charter of Siem Daya 1 (SD1) and Siem Daya 2 (SD2) to Technip, which has been deployed in North Sea as of end-February. ii) prospects of exploration and production business via its investment into Reach Energy (soon to be listed SPAC). iii) Downstream chemicals and specialised lifting services. iv) Outstanding orderbook of RM1.7bn.

Improving Polymer business. A slow growing division from the prospects of the industry and continued foreign competition. The Group however had implemented ongoing operational initiatives to deliver better production efficiency and improved cost structure, reflected in the positive results.

Technical Services to grow. Revenue increased due to the progress in several projects which were previously delayed, thus higher revenue was registered this year. A significant contributing division going forward, as the Group continues to build and execute its orderbook.

Maintain Outperform. We continue to recommend Daya based on our PE valuation of 12x implied PER to our FY14F EPS of 3.7 sen. As the Group’s vessels SD1 and SD2 have already been chartered out for a LT contract with Technip, earnings visibility is already materialised hence we see our valuation as reasonable at this juncture.

Source: PublicInvest Research - 3 Mar 2014