Results

In line: 1H13 core PATAMI increased 12% yoy to RM35.3m, making up 40% of HLIB and consensus full-year estimates.

Deviations

We considered the results to be in line as we expect contract mobilisation of HUCC detailed in our report date 20 May 2013 to accelerate earnings in subsequent quarters.

Dividends

Declared dividend per share of 5 sen bringing 1H13 total to 10 sen.

Highlights

YoY, 2Q revenue fell 3% due to lower value of work orders received and performed for the topside maintenance services.

YoY, 2Q PATMI margin surged from 27% to 32% due to higher margin work done in the topside maintenance and increased contribution from 26% associate Perdana Petroleum (BUY). We expect Perdana Petroleum to contribute about RM12m to Dayang’s net profit in FY13. We also understand there might be margin pressure in the next few quarters as RM4bn HUCC contract starts to roll out but profit recognition will be at lower margin in the initial stage.

Net earnings are expected to grow by 36% CAGR from 2013 to 2015 supported by huge RM5.2bn outstanding orderbook. To note, we have assumed zero contract replenishment in FY14 and FY15, any contract win will provide upside to our forecasts.

We opine that execution to deliver the project on time and within cost are the key factors to re-rate valuation for Dayang. Based on proven track record, consistent higher profit margin than peers and ability to grab major portion of the RM10bn HUC contracts, we are confident about Dayang’s ability to deliver the projects.

Many of the offshore platforms in Malaysia are over 20 years of age and urgently needs upgrading. These HUC and topside maintenance contracts are normally recurring every 5 years. Given Dayang’s strong track record and execution abilities, we believe Dayang continue be the winner and is emerging as a power house offshore HUCC player in a region of aging O&G infrastructure.

Risks

Political risk; Delays in contract disbursement; and Execution risk.

Forecasts

Maintained.

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 an unchanged TP of RM6.87 based on an unchanged 14x FY14 EPS of 49.1 sen/share.

Source: Hong Leong Investment Bank Research - 27 Aug 2013