Zhang Zuode

DAYANG - where to now, upside, sideway or down

zhangzuode
Publish date: Sun, 18 Feb 2024, 02:36 PM
Blog of Zhang Zuode

Dayang Enterprise Holdings Berhad (5141)

Where to now – upside, sideway or down?

Financial year 2023 ended with fourth quarter results to be announced in the coming week.

Dayang last reported to own 63.4% of Perdana Petroleum Berhad.

Thus, results of Perdana have a large bearing on Dayang. Below is Perdana yearly results.

 

(Edited to include Perdana's 4Q23)

Few things to note:

  1. Since Q2 23, daily charter rate (DCR) has improved a lot, see chart below
  2. The utilization has climbed above 60% (Final Q4 23 showed annual utilization is 58%)

 

The quarterly chart shows the seasonal effect (monsoon) on Q1 & Q4 result. Important to note is that the (calculated) chart rate for Q4 is  RM 186K. What is important is the trajectory of charter rate.

From the yearly chart, Perdana has not been profitable since 2014. It is profitable in 2023.

Recently, Perdana got exemption for their aging (exceed 15 years) fleet of AHTS to participate in tenders. Main reason is, Perdana’s six AHTS’ BHP exceed 10,000. There are only about 8 vessels of this size in the country. This powerful AHTS is required to move oil rigs, accommodation work barges and installation barges.

There might be realization that Malaysian OSVs are aging and without decent DCR, there will be no replacement over the horizon ….

Going forward, Perdana should see good revenue leading to profitability.

Dayang results in the near-term would not be negatively impacted by Perdana, in fact, Perdana will contribute positively to Dayang’s profitably.

Do not forget, Dayang, beside doing top-side maintenance and service (TMS), also have a marine segment too. Dayang enjoys this higher DCR for their fleet of work-boats. Here is Dayang’s quarterly marine segment revenue.

 

Note the sharp increases for quarter 2 & 3 of 2023 …

However, there is a drop in Dayang’s TMS revenue as shown. Perhaps, this is temporary, contracts extension distraction.

 

So, what will Dayang’s 2023 result be –

 

Depending on one’s risk appetite, using Trailing PER from BURSAMKTPLC (Refinitiv) report dated 15 Sep 2023 and using average of IBs' EPS of 14.4 sen from table above will give:

Trailing PE: 17.1                             RM 2.46

5-Year Average: 22.5                      RM 3.24

FBM KLCI Index Average: 14.0      RM 2.01

Based on Friday 16th Feb closing of 2.12, Dayang could be overvalued or undervalued.

I have estimated Dayang’s revenue to be 969M, EPS – 16.5 with net margin at 19.7% giving a net profit of 191M.

The average profit margin of 16.2% is rather low. I expected it to be nearer 19.7%.

 

2024 What is in store

Whatever the final quarter result of Dayang is, it is not important now. What will be Dayang's 2024 result is more important now.

Given:

  • the above, DCR would be higher going forward, (tighter OSV market due to maintenance activities level being higher to ensure continuous production to capture the high oil price)
  • resolution of contracts extension with higher rates

 

Item 1 above is replaced by item 13. Total 13 contracts in hand until end of 2024 with exception item 11 that will expire in 2026.

 

And with all Dayang’s fleet hired, Dayang will be very busy. Here is the expectation of the various IBs:

 

Year 2019, a record year, is included for comparison. The EPS adjusted for enlarged share base.

The Forward PEs is also from BURSAMKTPLC (Refinitiv) report dated 15 Sep 2023.

Based on IBs average, Dayang could be valued between 2.34 to 3.58 – average 2.90 and my model using the same forward PEs will give 2.56 to 3.92.

Again, the net margin of 17.1% is low and from my model, it might be nearer 19.5%.

 

Conclusion

Perdana should be profitable and contribute positively to Dayang's bottom line. With the conclusion of 12 MCM contracts on better rates, Dayang should return superb result that will likely break the records set in 2019.

 

Risks:

1) Weather - longer monsoon, stronger monsoon; insufficient time to complete work

2) Oil price - crashing due to over production or recession in the whole world; lead to postpone work

3) Execution - insufficient manpower, lack of materials / equipment; longer to complete leading to lower profit

4) another pandemic leading to control movement of manpower

5) not able to secure new contracts beyond 2024

 

HAPPY INVESTING.

 

Disclaimer:

I wrote this myself without pay. I and my families own Dayang shares. This is not an advice to buy / sell Dayang or any other equities / securities / assets.

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1 person likes this. Showing 1 of 1 comments

zhangzuode

With Perdana Q4 23 result, the charts for Perdana has been updated.

1 month ago

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