Dayang reported its 2QFY21 results with a headline net loss of RM21.9m, attributed to impairment loss on assets amounting to RM27.9m. Stripping this out, Dayang reported a core net profit of RM6m, improving from the RM1.3m core net loss reported in 2QFY20. Cumulatively, it reported a core net loss of RM18.3m for 1HFY21, against RM12.4m core net profit in 1HFY20. The numbers are below our and consensus expectations of a full year profit of RM85.5m and RM81.1m respectively. The weaker performance was attributed to lower efficiency levels due to movement restrictions and stricter SOPs implemented, as well as unexpected events occurring during the period, resulting in gross profit margin compressing by 19ppt YTD. Given the still-high COVID-19 infections and fatality rates, we foresee the level of productivity remaining low, affecting the overall performance for this year. As such, we lower our FY21 forecast by 81.9% while FY22-23F is cut by 21% on average to reflect slower progress billings and profit margins. Earnings from FY22 onwards will improve however, on the back of a healthy orderbook of RM2.3bn as well as improved efficiencies given the gradual relaxation on SOPs post COVID-19 vaccination. Maintain Outperform with TP revised to RM1.35 (from RM1.77 previously) based on 14x PER multiple over FY22 EPS of 9.68sen.

• Sequential improvement. Dayang reported a core net profit of RM6m in 2QFY21 from a core net loss of RM24.4m in 1QFY21 on the back of RM159.7m (+90% QoQ) revenue. This is attributed to higher vessel utilisation at 51% as compared to 20% in 1QFY21 which was affected by monsoon weather. Gross profit margin stood at 16.1%, below last year’s range of 24% to 39% however due to movement restrictions and stricter SOPs implemented.

• Better year ahead. Sector activities are improving, reflected by the topline growing by 90% QoQ. Nevertheless, bottom line will still be affected by tight SOPs set by the Health Ministry. It is understood that the Group still needs to comply with the 14-day quarantine for workers’ movement, not just to and from offshore, but also between one platform to another (which requires the crew to disembark back onshore for quarantine before moving to another platform), affecting its operational efficiencies and profit margins. That said, we are of the view that the overall performance for FY21 could just be a one-off as it also be impacted by other unexpected events such as total lockdown in Labuan territory for almost two months, and operations in five vessels also being halted for between 2 - 4 weeks due to COVID-19 infections. FY22 earnings onwards will improve on the back of healthy orderbook and improved efficiencies given the gradual relaxation on SOPs post-vaccination.

Source: PublicInvest Research - 21 Sept 2021