Dayang Enterprise (Dayang) has been awarded a contract for the provision of rectification works and associated services for Asset Integrity Findings (AIF), Package A, Sarawak Oil Asset (SK Oil) from PETRONAS Carigali. The contract period is for 3 years, from December 2023 until December 2026. The estimated value of the contract is RM1.2bn, which will build up its current orderbook outstanding to RM2.15bn. As mentioned earlier, Dayang was the frontrunner to secure the AIF as the Group was selected to undergo job scoping for six months in 2H2023. The value is slightly lower than expected however. To account for the AIF contract, we increase our earnings forecast for FY24F and FY25F by 11.1% and 12.3% respectively. Thus, we maintain our Outperform rating with a higher TP of RM2.50 (from RM2.25), pegged at 12x FY24 EPS.

• Significant contribution. The estimated value of the contract is RM1.2bn for a period of 3 years. Assuming a 15% net profit margin assumption, Dayang will book in RM60m or 25% of our FY24F earnings estimates.

• Solid outlook on Topside Maintenance Services (TMS). PETRONAS Activity Outlook (PAO) 2024-2026 suggests about 34% higher man-hour requirements on YoY basis in 2024 for Maintenance, Construction, and Modification (MCM) and Hook-Up and Commissioning (HUC) works. This higher activity requirement substantiates the need to increase the unit rate in addition to inflationary factors given the current rate was set back in 2018 for incoming MCM and HUC contracts.

• Expect higher charter rate for vessels. On another note, Dayang is in the midst of submitting tenders for its five-accommodation workboats (AWB). We believe it could secure the tender with a slightly higher daily charter rate (DCR) than the previous contract due to the shortage of Malaysian-flagged offshore support vessels (OSV). Some operators are charter-in foreign-flagged OSVs with cost-plus mark-ups to meet local demand. In PAO 2024-2026, there is an increase of AWB requirements from 48 to 55 on YoY basis in 2024. PETRONAS also highlighted that the Group is optimizing vessel utilization by centralized direct chartering. This enables PETRONAS to assign a vessel towards multiple projects, resulting in better utilization rate.

Source: PublicInvest Research - 5 Jan 2024