News

Dayang announced that its subsidiary Dayang Enterprise Sdn Bhd (DESB) has received a letter of award (LOA) from Murphy Sarawak Oil for the provision of hook up, commission and topside major maintenance services from 2013 to 2018.

The contract value is estimated to be RM313.6m and the duration is 5 years with an extension option of 1 year.

Comments

We are positive on the contract award which we believe is in addition to the RM2.5bn to RM3bn Shell HUCC. The contract is the first award from the RM10bn Pan Malaysia Hook-up and commissioning (HUCC).

We expect Dayang chances to win additional contracts (including Shell) as extremely good.

The win increases Dayang’s total orderbook by 25% from RM1.2 bn currently. We have factored in a RM2.5bn win (no replenishment) from the RM10bn HUCC.

This contract reiterates our view that improving economies of scale, Dayang’s strong negotiating power and the ability to lock in some costs at current rates and a bigger win rate may result in fundamental valuations in the bullish, bottom left hand quadrant. Conversely, our conservative valuation is in the top right hand quadrant.

With the focus on the HUCC contracts, we believe the market is unjustly ignoring other catalysts; potential entry into marginal fields, improving sentiment, possible regional expansion and the possibility of being a US$1bn market cap stock which would put the company on the radar of more international funds.

Risks

• Political risk, Delays in contract disbursement, Execution risk.

Forecasts

• Maintained for now pending additional contract wins and 1Q13 results.

Rating

BUY

• Positives –
  • solid track record and expertise in HUC.
  • captive market for topside maintenance.
• Negatives –
  • unsure of international growth prospects.
  • difficulties in sourcing O&G engineering talent.

Valuation

• We maintain our BUY call with TP RM4.00 based on an unchanged 14x (our small cap valuation multiple) FY14 EPS of 28.6 sen/share.

Source: Hong Leong Investment Bank Research - 07 May 2013