News

Dayang announced that its wholly-owned subsidiary DESB Marine Services Sdn Bhd has entered into a shipbuilding contract with Shin Yang Shipyard on 5 September 2013 for the construction and delivery of one unit of accommodation workboat.

The vessels will cost RM70m and scheduled to be delivered by 4Q14.

Comment

We view the acquisitions positively and in line with Dayang’s fleet expansion plan in providing marine support services. To recap, Dayang has secured RM313.6m contract from Murphy Sarawak Oil, RM2.5bn from Sarawak/Sabah Shell and RM1.3bn contract from Petronas Carigali. Overall, Dayang has clinched circa RM4.0bn out of the total RM10bn HUCC contracts. We believe that the new accommodation workboat will be used in servicing the HUCC contract.

We understand that Dayang has started to mobilise its vessels for HUCC contract and there might be margin pressure in the next few quarters as the contract starts to roll out but profit recognition will be at lower margin in the initial stage.

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 will continue to be a 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 - 6 Sep 2013