Results

• Within Expectation: 9MFY14 core PATAMI increased 17% yoy to RM147m, making up 74% of HLIB and consensus fullyear estimates respectively.

Highlights

3QFY14 revenue surged by 38% yoy and 6% 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 remain stable and back to level of circa 28% after incurred high mobilisation cost at the initial stage of project. Shell and Murphy HUC projects are already fully mobilized with Petronas’s HUC contract activities to pick up by 1Q15. Given the sustainable margin, we are reassured by the company’s ability to execution the RM4.2 bn HUCC contract which is expected to sustain at least until 2018.

Despite already secured huge existing orderbook, Dayang is eyeing for RM800mn tender book and expecting 50% hit rate with the outcome of RM400m worth of EPCC contract to be known by 4Q14. To note, we have assumed zero contract replenishment in FY14 and FY15, any contract win will provide upside to our forecasts. Assuming RM400m contract win with 3 years duration and 20% net margin, we estimate this will raise our FY15 earnings by 11%.

Majority of Day ang’s earning is related to production instead of exploration and this will buffer it from potential capex cut. Despite lower Brent crude price assumption of US $80 level in the midterm instead of more than US$100 previously given rising supply from US, we expect production related and maintenance services will continue.

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

• difficulties in sourcing O&G engineering talent.

Valuation

• We maintain our BUY call with unchanged TP of RM3.50 based on an unchanged 12x FY15 EPS of 29.1 sen/share.

Source: Hong Leong Investment Bank Research - 27 Nov 2014