Results

Below Expectation: FY13 core PATAMI increased 5% yoy to RM93m, making up 80% and 81% of HLIB and consensus full-year estimates respectively.

Deviations

RM4bn HUCC contract starts to roll out but profit recognition will be at lower margin in the initial stage due to high mobilisation costs incurred.

Dividends

Declared 3.5 sen/share bringing total of 6.8 sen/share in FY13 vs. our forecast of 5.4 sen/share.

Highlights

YoY, 4Q revenue surged 128% due to higher value of work orders received and performed for new hook-up, commissioning contracts that were awarded in May 13. However, EBIT margin continue to weaken from 22% in 4Q12 to 13% in 4Q13 mainly due to high mobilisation costs incurred in the execution of the PAN HUCC contracts at initial stage. We expect margin to improve going forward once the contribution from HUCC contract fully kick in.

Its associate income from Perdana Petroleum increased 40% QoQ due to commencement of RM700m charter contract from Dayang and cost savings from disposal of aging vessels. YoY, FY13 average vessel utilisation has improved from 77% to 80%. We expect Perdana Petroleum to contribute about RM25m to Dayang’s net profit in FY14.

Many of the offshore platforms in Malaysia are over 20 years of age and urgently needs upgrading. These HUCC 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 infrastructures.

Net earnings are expected to grow by 27% 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.

Risks

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

Forecasts

FY14 and FY15 earnings reduced slightly by 3% after adjustment for depreciation on PPE and we expect margin to improve going forward once the RM4bn HUCC contract fully commence.

Rating

BUY

Positives –

• solid track record and expertise in HUCC.
• 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 new TP of RM4.09 after adjusted for the 1 for 2 bonus issues based on an unchanged 14x FY14 EPS of 30.2 sen/share.

Source: Hong Leong Investment Bank Research - 27 Feb 2014