News

• Dayang has been awarded RM250m worth of contract for the provision of Facilities Improvement Project (FIP) for Petronas Carigali in Sarawak and Sabah.

• The duration of the contract is 2 years from 8 June 15 until 7 June 2017.

• The work scope including modification or upgrading work under SIMOPs, HUC and major construction work. Financial Impact

• With net margin assumption of circa 15% and 2 years contract duration, we expect the contract to contribute RM9.4m and RM19m to FY15 and FY16 PAT or boost of 5% and 9%, respectively.

Pros/Cons

• We are positive on the contract award and this is inline with our view that brownfield services provider will be relatively resilient amidst low oil price environment.

• Orderbook is increased by 6% to more than RM4bn which will last at least until 2018 and Dayang is still tendering for RM500m contract. To note, we have not assumed any contract replenishment in FY15 and FY16, further contract win will provides upside to our earnings forecasts.

• The proposed share acquisition in Perdana and potential MGO is strategic fit for both compani es as Perdana’s fleet of vessels will be complementary to Dayang’s HUCC business and this will help Dayang to well position for next round of HUC tender in 2018/2019. The deal could potentially enhance Dayang’s FY16 EPS by 3-20%.

Risks

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

Forecasts

• Our FY15 and FY16 earnings raised by 5% and 9% respectively after factored in the RM250m contract.

Rating

HOLD

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 maintained our HOLD call with TP adjusted from RM2.55 to RM2.78 based on unchanged 11x FY16 P/E post earnings upgraded.

Source: Hong Leong Investment Bank Research - 5 Jun 2015