Dayang Enterprise (Dayang) has been awarded a scope expansion to cover Sarawak Gas’ (SK Gas) area under contract amendment for the provision of offshore maintenance, construction, and modification (MCM) services for Petronas Carigali. The contract period is for six months from June 2023 until December 2023 with estimated value of RM50m. This will contribute to Dayang’s existing orderbook of RM1.2bn, which will keep Dayang busy until December 2024 after recent multiple contract extensions. Although the contract value is relatively small, we believe more upside from the Topside Maintenance Services (TMS) segment will come in FY24F onwards, from: i) long-outstanding upward revisions of new tenders and ii) maintenance backlog programs. On the Marine Charter segment, our back of the envelope calculations show significant growth due to higher daily charter rates (DCR), supported by tight offshore support vessel (OSV) supply in next 2-3 years. Excluding the maintenance backlog program, we raise our earnings by an average of 22% for FY23F-FY25F, solely from upward revision for new tenders and higher DCRs. We maintain our Outperform rating with higher TP of RM2.25 (from RM1.85), pegging an unchanged 12x multiple to a higher FY24 EPS.

• Upward revision for new tender in FY24F. So far, Dayang has received a total of eight contract extensions from various clients until December 2024 (as per Table 1). We expect another three significant contracts from PETRONAS Carigali will be extended by December 2023 for another year. Within the extension period, there will be calls for new tenders with estimated higher rate of between 20% and 25% as we understand. The quantum is reasonable in our view, after taking into account inflationary factors given the current rate was set back in 2018.

• New income stream from maintenance backlog program. About five packages of maintenance backlog program worth RM3-5bn for a threeyears duration will be awarded by the end of this year. There will be two packages for Peninsular, two packages for Sarawak and one package for Sabah. We believe Dayang is frontrunner for the contracts given it is currently undergoing the job scoping for the program. Although we are confident that Dayang would secure at least two contracts (mainly Sarawak and Peninsular) with estimated value of c.RM1.5bn, we are taking a conservative stand and not account for contributions from the program. Assuming a 15% net profit margin assumption, Dayang would book in an additional RM75m, or 34% of our FY24F estimates.

• Marine Charter segment to set new baseline from FY23F onwards. Owing to Dayang’s 64%-owned Perdana Petroleum’s performance, the Marine Charter segment booked a record quarterly revenue of RM126m in 2QFY23, a level that we have not seen in the last 15 quarters. The outstanding performance was due to the change in contracting strategies by its client after centralising its logistics operations, resulting in all local OSVs being fully chartered with higher DCRs. This includes all five accommodation work boats (AWB) that have been fully booked by PETRONAS since February 2023 (Table 2). Our back of the envelope calculations show that Marine Charter segmental revenue will record 80% growth in FY23F as compared to FY22, assuming a similar DCR in 2QFY23, and making up 70% external revenue. This will set a new baseline for the next 2-3 years as the OSV market remains tight. Entry barrier for local players remain high given full utilisation rate from regional shipyards to clear backlog orders since the pandemic.

Source: PublicInvest Research - 24 Oct 2023