Dayang Enterprise (Dayang) reported a core net loss of RM15.8m in 1QFY23,  against a core net profit of RM10.2m in 1QFY22 and RM8.8m in 4QFY22. This is in tandem with lower revenue by 29.8% YoY and 49.4% QoQ mainly due to lower work orders received and performed under offshore topside maintenance services (TMS) during the monsoon season. Although vessel utilisation rate came in slightly better at 26% compared to 25% in 1QFY22,  higher operating cost has resulted in lower gross margin due to inflationary pressures, pre-mobilisation costs and vessel maintenance. All in, the results are within our expectation as the impact of bad weather during the quarter is anticipated based on its seasonal trend. We foresee Dayang’s earnings uptrend returning to full swing from 2Q onwards as it has started to mobilise assets and execute on its offshore works starting March 2023 post monsoon season. This is also on the back of 5 new charter vessel contracts secured in  1QFY23 (Table 2). Our Outperform call is affirmed with higher TP of RM1.85 based on 12x PE (average blended Forward PE) after we rollover to FY24  EPS.

• Dragged by monsoon season. 1QFY23 recorded a huge decline in revenue by 29.8% YoY and 49.4% QoQ mainly due lower work orders received and performed under the offshore TMS segment as a result of  the monsoon season. Revenue was also impacted by low vessel utilisation rate of 26%. On a YoY basis, gross margins (-17.5 ppts) were impacted by inflationary pressures, pre-mobilisation costs and vessel maintenance, despite vessel utilisation rate being slightly higher by 1% (26% @ 1QFY23 vs 25% @ 1QFY22). On a positive note, we believe the  strategy to undertake vessel maintenance during the seasonally weak  quarter bodes well in preparation for mobilization from 2Q onwards. Despite core net loss of RM15.8m, we deem the results within our  expectation as the impact of bad weather during the quarter is anticipated  based on its seasonal trend.

• Full swing ahead. We expect Dayang’s earnings to improve in 2Q and  3Q FY23 as it has started to mobilise assets and execute on its offshore  works starting March 2023 post monsoon season. Currently, its orderbook  stands about RM1.3bn, mostly to be recognised throughout this year. In  addition, we believe new contracts with upward revision of its  Maintenance, Construction and Modification (MCM) segment would be the  catalyst for Dayang in 2H2023. As for the marine charter services,  Dayang has 5 new charter vessel contracts secured from Petronas in  1QFY23. With the offshore support vessel (OSV) market remaining tight, we reckon Dayang remains in a favourable position to secure contracts  with better daily charter rate for its remaining vessels (Dayang Nilam and  Dayang Maju).

Source: PublicInvest Research - 24 May 2023