Dayang Enterprise (Dayang) secured a contract extension for the provision of Pan Malaysia Maintenance, Construction and Modification (PM-MCM) works from Hibiscus Oil and Gas Malaysia, previously known as Repsol Oil and Gas Malaysia. The original contract was awarded in 2018 for a duration of 5 years, with the 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 2024, longer than the original optional period. This is the third contract extension that Dayang has secured, following extensions by ROC Oil and JX Nippon in July. We expect all contracts to be extended until December 2024 as they reach expiry within 2H 2023. We reiterate our optimistic view on the Group’s outlook with a strong orderbook of c. RM1.51bn. We also expect the Group’s earnings to return to the black in 2QFY23 due to high vessel utilisation rate and accelerated project execution. We retain our Outperform call with TP of RM1.85 pegged to 12x PER over FY24 EPS.

• The contract extension period (1 year and 5 months) is similar to the contract extension from ROC Oil and JX Nippon. We estimate the extension is worth at c.RM30m based on pro-rating the estimated original contract value of RM100m for 5 years.

• Orderbook replenishment via extension. We expect at least another 5- 6 contracts will be extended in 2H 2023 with the estimated extension period until December 2024. If we assume a pro-rata of all the contract extensions, we estimate it would be worth about RM1.2bn. This is possible due to robust offshore activity in MCM and hook-up and commissioning (HUC) services, and time constraints to issue competitive bidding of new tender awards from its clients.

• Earnings preview. Dayang is set to announce its 2QF23 results by next week. To recap on 1QFY23, it recorded a core net loss of RM15.8m mainly due to seasonal factors that led to low utilisation vessel rate and delays in project execution. However, we expect the Group to record a healthy profit for 2QFY23, underpinned by high vessel utilisation rate which is at about 70% against 26% in 1QFY23, on top of upward revisions in its daily charter rates. We also gather that there are no further delays on few key projects in 2QFY23 as it was previously caused by unavailability of vessel from the clients, which will now contribute significantly to its topline.

Source: PublicInvest Research - 18 Aug 2023