Dayang reported that it has been awarded a contract amendment and extension for the provision of offshore Maintenance, Construction and Modification (MCM) services from Petronas Carigali. This contract was awarded to Dayang in 2018 with expiry in September 2022. The extended contract duration is effective from 20 September 2022 until 31 December 2023. This comes as no surprise as we had indicated earlier in our post-results update report on the potential extension given the near-expiry of this contract. This also demonstrates Petronas’ commitment towards achieving its RM60bn capital expenditure (capex) target by year end, as well as renegotiating contracts with contractors given the current higher cost of project execution. No change to our FY22-24 earnings forecast as we have imputed the extension and adjustments in our projections. Maintain Outperform with an unchanged TP of RM1.35 based on 14x PER multiple over FY23 EPS.

• MCM contract extension. Dayang was awarded the Petronas MCM contract earlier in 2018. Given the expiry of the contract in September 2022, some amendments and extensions have been made for the contract which includes more than a year extension effective from 20 September 2022 until 31 December 2023. It is understood that the rates have also been adjusted higher though no fixed value has been stated as it is still based on work orders issued by Petronas throughout the extended contract duration.

• Our view. This comes as no surprise as we had indicated earlier in our post-results update report on the potential extension given the near-expiry of this contract. This also demonstrates Petronas’ commitment towards achieving its RM60bn capex target by year end as well as renegotiating contracts with contractors given the current higher cost of project execution, i.e., raw material cost such as steel, labor cost, and transportation costs such as higher OSV charter rates. That said, this contract extension is a positive for Dayang as it proves its capability and track record as a brownfield specialist.

• Earnings forecast. No change to our FY22-24 earnings forecast as we have imputed the extension and adjustment in our projections. That said, we foresee the value of this MCM contract being adjusted higher by about 38% to RM50m – RM60m per month, translating to RM750m – RM900m over the extension period. Prior to extension, the MCM contract contributed around RM35m – RM45m per month to Dayang’s revenue.

Source: PublicInvest Research - 21 Oct 2022