• Despite an encouraging pick up in revenue, DEHB’s 3Q23 normalised net profit dipped 5% qoq due to higher depreciation, taxes and minority interest.

• 9M23 normalised net profit made up 83% of our forecast. We consider this as in line as 4Q tends to be seasonally weaker due to the monsoon season.

• Reiterate Add with an unchanged GGM-based TP of RM2.50. DEHB remains one of our top picks in the Malaysian O&G sector and broader market.

3Q23 Results Review

• Sequentially, Dayang Enterprise’s (DEHB) 3Q23 EBITDA increased by 8% qoq, driven by higher work orders for its core operations and EBITDA margins holding up well at above 40% for a second straight quarter. However, normalised net profit was lower by 5% qoq due to higher depreciation charges, taxes and minority interest during the quarter.

• On a yoy basis, 3Q23 revenue was up 2%, while normalised net profit grew by a more significant 38%, on the back of higher value of work orders received and performed during the quarter from its recent contract extensions. Accordingly, group EBITDA margin picked up by 10% pts yoy to 45%.

• Cumulatively, DEHB’s 9M23 normalised net profit grew by 28% to RM143.3m. The strong growth was driven by a pick-up in workflow from its existing Pan Malaysia HUC and topside major maintenance contracts (for which a slew of contract extensions were secured and announced over the past couple of months), and a notable improvement in EBITDA margin to 40% (+7% pts yoy).

• 9M23 normalised net profit made up 83% of our full-year forecast. We consider this to be largely in line, given that, historically, the group's 9M net profit constituted 67-84% of full-year profits, given the distribution of work orders, which tend ed to be concentrated in 2Q and 3Q to avoid the monsoon season.

• DEHB’s balance sheet showed significant improvements in recent quarters, alongside the pick-up in earnings — moving to a net cash position of RM26m in 3Q23 (from a net debt of RM163m in 3Q22).

Reiterate Add Rating, With a TP of RM2.50

• Despite DEHB’s relatively strong share price performance YTD, valuations remain attractive, with the stock trading at an ex-cash 2024F P/E of 8.2x (well below its 10-year mean of 11.5x), which we find compelling for an O&G stock with encouraging growth prospects over 2024F-2025F, excellent track record in brownfield maintenance services, and a net cash balance. We reiterate Add, with a GGM-based TP of RM2.50 (ROIC: 13.9%; WACC: 10%; LT g: 5%). Potential re-rating catalysts: successful tenders for several upcoming multi-year brownfield services contracts and better-than-expected vessel utilisation rates for PETR. Downside risks include delays in work orders and nonrenewal of its existing contracts.

Source: CGS-CIMB Research - 23 Nov 2023