Results

Within Expectation: 1HFY14 core PATAMI increased 47% yoy to RM89m, making up 45% and 41% of HLIB and consensus full-year estimates respectively.

Deviations

We deemed the result inline due to stronger 2H as 1Q is always the weak quarter due to monsoon season.

Dividends

Declared first interim dividend of 3.5 sen, in line with our full year forecast of 7.2 sen.

Highlights

2QFY14 Revenue surged by 99% yoy and 25% QoQ due to higher value of work orders received and performed for new hook-up, commissioning contracts that were awarded in May 13.

QoQ, EBIT margin improved from 22% to 28% due to high mobilisation costs incurred in the execution of the PAN HUCC contracts in 1Q14. Given the margin rebound, we are reassured by the company’s ability to execution the RM4.5bn HUCC contract which is expected to sustain at least until 2018.

Despite already secured huge existing orderbook, Dayang has an outstanding tender book of RM400m with outcome to be known 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 140% 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

Unchanged.

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 RM4.07 based on an unchanged 14x FY15 EPS of 29.1 sen/share.

Source:Hong Leong Investment Bank Research - 25 Aug 2014