Results

Slightly Below: 9M13 core PATAMI increased 5% yoy to RM93m, making up 61% and 64% of HLIB and consensus full-year estimates respectively.

Deviations

Contract mobilisation of HUCC slower than our expected.

Dividends

None.

Highlights

YoY, 3Q revenue surged 35% due to higher contribution from hook up, commissioning and topside major maintenance services. However, 2QFY13 PATAMI fell 23% due to mobilisation costs incurred in the execution of the PAN Hookup and commissioning (HUC) contract quarter which we mentioned in our report previously.

Its associate income from Perdana Petroleum increased 14% QoQ due to savings from the operating costs of old vessels which have been sold. We expect Perdana Petroleum to contribute about RM12m to Dayang’s net profit in FY13. We expect margin pressure to continue 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.

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 be a winner and is emerging as a power house offshore HUCC player in a region of aging O&G infrastructure.

Net earnings are expected to grow by 40% CAGR from 2013 to 2015 supported by huge RM5bn 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 vis-à-vis peers and ability to grab major portion of the RM10bn HUC contracts, we are confident about Dayang’s ability to deliver the projects.

Risks

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

Forecasts

We cut our FY13 earnings by 5% as contract mobilisation of HUCC was slower than our expectations. However, we maintain our FY14 and FY15 forecasts as we expect full contribution from the RM4bn HUC contract.

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 Nov 2013