Results

Slightly below expectation: 1QFY14 core PATAMI increased 36% yoy to RM35m, making up 15% of HLIB and consensus full-year estimates respectively.

Deviations

Mainly due to seasonal weak quarter arising from monsoon season coupled with some delay in HUCC work schedule.

Dividends

None.

Highlights

YoY, 1QFY14 revenue surged 102% 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 weaken from 36% in 1Q13 to 22% in 1Q14 mainly due to high mobilisation costs incurred in the execution of the PAN HUCC contracts at initial stage. Overall, we understand the company is progressing well on the execution of the RM4bn HUCC contracts. We expect margin improvement from 2Q14 onwards.

Despite already secured huge existing orderbook, Dayang has an outstanding tender book of RM400m with outcome to know by 3Q14. To note, we have assumed zero contract replenishment in FY14 and FY15, any contract win will provide upside to our forecasts.

Its associate income from Perdana Petroleum increased 320% YoY due to commencement of RM700m charter contract from Dayang and cost savings from disposal of aging vessels. We expect Perdana Petroleum to contribute about RM25m or 13% 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.

Risks

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

Forecasts

FY14 earnings reduced by 13% mainly due to some delay in HUCC work schedule. However, once HUCC works commence in FY14, earnings from FY15 onwards would be largely intact, hence, we are not changing our FY15 forecast.

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 unchanged TP of RM4.09 based on an unchanged 14x FY15 EPS of 30.2 sen/share.

Source: Hong Leong Investment Bank Research - 26 May 2014