Highlights

Back to black…1QFY14 result was within consensus expectation, PATAMI swung from losses to profit of RM1m QoQ as the Tapis EOR project was completed with no cost overrun repeated. Management has guided for soft 1Q results previously as both SD1 and SD2 vessels will incur loss of RM7-8m as they only started operation in Mar with fix operating cost incurred in Jan and Feb.

Full horse power from SD1 and SD2 onwards…Siem Daya 1 (SD1) and Siem Daya 2 (SD2) commenced works with Technip Norge in beginning of Mar 14. Both vessels will commence full contributions from 2Q14 onwards. Both vessels contribute US$8-9m per month, translating to $133k- 150k/vessel/day versus our assumption of US$105k mainly due to additional services provided such as meal, bunker and communication charges (exclude additional services, the charter rate will be US$115k/day, still above our assumption of US$105k).

Bidding short term contract…We understand the company is bidding for 6 month duration contract with a big O&G client. The job will be based in West Africa or Brazil with charter rate of US$125-130k/day versus our assumption of US$119k/day.

Capture margin expansion through proposed acquisition… Although there might be some delay in the process of acquiring both vessels, the company expect the deal to complete in 3Q14. The company is working on a fund raising exercise to raise RM930m (combination of debt and equity, Ref Fig 1) to acquire 100% of SD1 and SD2 vessels. Each vessels cost around US$140m. We estimates saving of US$15-20k/day/vessel under an ownership model (vs. lease model). A potential third vessel acquisition will increase bottom line by RM24m or 33%.

Orderbook of RM1.7bn with tenderbook at RM900m… Besides bidding for projects in subsea and technical services worth RM900m, Daya is eyeing a production chemical contract worth RM200m.

Reach Energy IPO on track…Daya is the sole pre-IPO cornerstone investor with RM10m investment. Reach Energy exposure prospectus was released with SC approval expected in June14. Daya will leverage on alliance with Reach Energy in the E&P segment by providing subsea and other related services.

Disposal of non-core asset…Recently, Daya has disposed 30% stake in its technical services for RM18m (implied P/E of 6x). The buyer will have an option to buy additional 45% stake from Daya for RM32m (implied P/E of 7x) in the future. We are positive on the move as this is in line with management strategy to focus on O&G business going forward.

Valuation

After the corporate fund raising to acquire 100% stake in SD1 and SD2, Daya is expected to trade at 23x FY14 and 12x FY15 P/E (Ref Fig 1, Scenario 1). To note, we see upside risk for FY15 due to: i) higher than expected charter rate; and ii) lower operating cost (our assumption of US$70k/day vs. management guidance of US$61k/day).

Source: Hong Leong Investment Bank Research- 30 May 2014