KUALA LUMPUR (Aug 21): Dayang Enterprise Holdings Bhd (DEHB) (KL:DAYANG) may see potential upside to its 2024 earnings after the strong performance posted by its 64%-owned subsidiary Perdana Petroleum Bhd (PETR) (KL:PERDANA), said CGS International Securities.

For the first half of the year (1H2024), PETR’s normalised net profit came in at RM50.3 million (nearly tripling from the RM17.2 million it recorded in 1H2023), on higher vessel fleet utilisation at 76% (vs 50% in 1H2023) and charter rates.

"We view the strong performance by PETR as a positive read-through for DEHB.

"Taking PETR’s strong earnings delivery and operational performance into consideration, alongside the still buoyant outlook for offshore supply vessels (OSVs), higher work orders for DEHB’s core operations in 2Q and 3Q and incremental revenues from the commencement of the Asset Integrity Findings (AIF) contract from May 2024, DEHB’s 2024F earnings look set to surprise on the upside," it said in a note on Wednesday.

CGS International's current projections imply normalised net profit growth of 36% for 2024F and a further 30% in 2025F for DEHB.

Its net profit forecast for 2024F currently stands at 5% and 23% for 2025F, ahead of Bloomberg’s consensus estimates.

The research house reiterated its “add” call on DEHB with an unchanged target price of RM4. There are currently eight “buy” calls on the stock, with one “sell” recommendation, based on Bloomberg data.

“DEHB remains one of our top picks in the Malaysian O&G sector and broader market,” CGS International said.

“While its share price is up 84% over the past year, outperforming the KLCI (+14%) and KL Energy Index (+15%), we see further upside potential,” CGS International added.

At current price levels, CGS International believes the group’s strong earnings prospects have yet to be adequately priced in.

CGS International estimates the market is currently pricing in a sustainable return on invested capital (ROIC) of 15.8% for DEHB, which is 3-8% points below its own forecasts of 18.3% for FY2024F and 24.2% for FY2025F.

“Valuations look undemanding to us, with the stock trading at an ex-cash 2025F P/E of 7.2x, a 37% discount to its 10-year mean of 11.5x for a company offering robust earnings growth, excellent track record in brownfield maintenance services and dividend yields of ~4% in FY25F, which is backed by a strong net cash balance sheet,” CGS International added.