After stripping out unrealised foreign exchange (forex) gain of RM49.6m, Dayang Enterprise (Dayang) posted 3QFY24 a core net profit of RM85.9m, a 10.4% YoY increase, driven by offshore Topside Maintenance Services (TMS) and Marine Charter. However, the core net profit was 34.1% lower on QoQ basis, dragged by expiring contracts in the offshore TMS, set to conclude by December 2024. Overall, we deem 9HFY24 results were in-line with our and consensus estimates at 84.9% and 83.5% respectively as we anticipate lower work order and utilisation rate in 4QFY24 due to monsoon season. Despite securing large contracts, we reckon that the depressed sector-wide valuation will persist due to the downside risk for oil prices as we highlighted in our sector report published on 15 November. However, we continue to like Dayang due to its position as brownfield specialist and maintain our Outperform call.

• Offshore TMS' segmental profit declined by -31.3% QoQ on the back of lower revenue by -5.1% QoQ. This was due to lesser work order performed during the period as the existing contracts are set to expire by December 2024. We expect the work order in 4QFY24 will be declining further due to monsoon season and shift in focus towards demobilising projects as the contracts near to end.
• Marine Charter's segmental profit rose by 19.1% QoQ (excluding unrealised forex gain), despite a lower utilisation rate of 86% as compared to 91% in 2QFY24. We believe the stronger profit was due to improved daily charter rates (DCR) for its offshore support vessel (OSV) on QoQ basis, which increased its EBIT margin by 6.4ppts to 54.2%. We also noted that its 64% subsidiary, Perdana Petroleum has chartered-in about 3 foreign flag third party vessels in current quarter due to the tight vessel market.
• Marine Charter to mitigate downside risk. So far, Dayang has secured three Maintenance, Construction and Modification (MCM) and Hook-up and Commissioning (HUC) contracts, worth about RM4bn as replenishment of expiring contracts. This brings its existing orderbook worth RM5.3bn to sustain its earnings for next 5 years including RM1.2bn of Asset Integrity Findings (AIF) contract, with the reminder from expiring contracts. Despite its substantial orderbook, the execution of call-out work order remains uncertain in a depressed oil price environment. Domestic uncertainties and oil price volatility pose challenges to PETRONAS in maintaining cash flow for planned capital expenditure (capex) and dividend payment to government. Nonetheless, we anticipate that Marine Charter segment would remain robust due to the tight vessel market to support the existing productions and high priority capex.

Source: PublicInvest Research - 22 Nov 2024