Dayang Enterprise (Dayang) secured a contract extension for the provision of Procurement, Construction, Installation, Hook-up and Commissioning (PCI + HUC) services from Roc Oil (Sarawak) SB. The original contract was awarded in 2019 for a duration of 4 years with an estimated value of RM400m, and option to extend by 1 year. In spite of the pre-existing terms, the contract has nonetheless been extended by 1 year and 5 months until December 2023, longer than the original optional period. There is no disclosure on this new contract value, though our guestimate puts it at RM150m based on pro-rating the estimated original contract value. The Group’s orderbook is now about RM1.45bn, though with most key contracts expiring in 2H 2023. We expect more contract extension will be awarded given high offshore activity in maintenance and HUC services, and time constraints to issue competitive bidding of new tender awards. We are positive on the Group’s outlook with earnings expected to return to full swing from 2Q onwards. We maintain our Outperform call and TP of RM1.85 pegged to 12x PER over FY24 EPS.

• A positive sign. We are positive on the contract due to the extension given being longer than the original optional period. This validates our view on the Group being able to replenish its orderbook in 2023 via contract extensions due to time constraints for clients to issue out new tenders. Excluding this contract, we gather that at least 5 key contracts will expire in July 2023 with estimated remaining contract sum of RM100m as at 1Q 2023. Meanwhile 3 main contracts will be expired in December 2023 with an estimated remaining sum c.RM987m for the similar period.

• Better bargaining power ahead. Due to limited players in the similar industry space and high demand for offshore activity services, we believe oil and gas service equipment (OGSE) providers like Dayang will have better bargaining power and being selective in bidding for new contracts. This will allow the Group to have upward revisions in the value of its contract extensions, similar to its vessel chartering services due to the scarcity of vessels in the market.

Source: PublicInvest Research - 14 Jul 2023