Dayang Enterprise’s (Dayang) 2QFY23 financial result returned to the black with core net profit of RM83.9m from core net loss of RM15.8m in 1QFY23 (QoQ), while also surging by 133.5% YoY. The Marine Charter segment recorded strong growth on the back of high vessel utilisation rate at 72% and higher daily charter rate (DCR) from 5 vessel contracts secured in 1QFY23. Cumulatively, the Group reported core net profit of RM68.0m for 1H2023, higher by 50.3% YoY. We deem this as broadly meeting our and consensus estimates at 47.3% and 43.5% of full-year estimates, as we expect stronger earnings in 3QFY23. The Group’s orderbook currently stands at RM1.2bn. Since July 2023, it has secured 4 contract extensions and we expect more contracts will be extended in 2HFY23, which will keep its offshore Topside Maintenance Services (TMS) segment busy until December 2024. We retain our Outperform call and TP of RM1.85 based on 12x multiple to FY24 EPS.

• Surging Marine Charter segment. Revenue contribution from the Marine Charter segment surged by +270.5% QoQ and +54.9% YoY on the back of higher utilisation vessel rate and DCR rate. The Group recorded utilisation rate at 72%, higher from 26% and 66% in 1QFY23 and 2QFY22 respectively. It also recorded higher DCR rate as contributions from 5 vessel contracts secured in 1QFY23 have been recognised in 2QFY23 (Table 2).

• Tight offshore support vessel (OSV) market conditions have seen clients changing contracting strategies by centralising logistics instead of relying on contractors, to mitigate the risk of unavailability of vessel in executing the offshore works, as we understand it. We also gather that local OSV players such as Dayang and its subsidiary, Perdana Petroleum are preferred over the foreign flags. As a result, all local OSVs have been fully chartered with DCRs also creeping up, though yet to reach the peak as yet.

• Replenishing offshore TMS orderbook via contract extension. Since July 2023, the Group has secured 4 contract extensions (Table 3). We expect the Group would have another 4-5 contracts to be extended for a similar expiry until December 2024. Assuming pro-rata from the existing contract value estimates, all contract extensions would be worth about RM1.1bn. This is possible given: i) robust offshore activity for Maintenance, Construction and Modification (MCM) and hook-up and commissioning (HUC) services, and ii) time constraints to issue competitive bidding of new tender awards from its client.

Source: PublicInvest Research - 25 Aug 2023