Results

• Below Expectations: 2QFY15 core PATAMI was flat QoQ, bringing 1HFY15 core PATAMI to RM70m, making up 41% and 39% of HLIB and consensus full-year estimates respectively.

Deviations

• Due to slower orderbook recognition and lower contribution from its associate, Perdana Petroleum (swung from profit to loss due to lower utilisation rate).

Highlights

• 1HFY15 core profit reduced by 22% yoy due to lower progress work orders from hook -up and commissioning contracts. Its associate Perdana has swung from profit to loss mainly due to average utilisation fell from 76% to 68% also as a result of slower work orders.

• The proposed MGO on Perdana at RM1.55 per share has received acceptance rate of close to 95%. Assuming full privatisation, Dayang’s net gearing will surge to 0.8x. Despite the unfavourable short-term outlook for Perdana due to lower average utilisation, the acquisition is a strategic fit for both companies as Perdana’s fl eet of vessels will be complementary to Dayang’s HUCC business. This will help Dayang to entrench its position for next round of HUC tender in 2018/2019.

• Latest orderbook is about RM3.8bn which will last at least until 2018 and Dayang is tendering RM500m contracts. To note, we have assumed zero contract replenishment in FY15 and FY16. Any contract win will provide upside to our forecasts.

Risks

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

Forecasts

• FY15 and FY16 earnings reduced by 11% and 23% after factoring in slower orderbook recognition and lower contribution from its associate, Perdana Petroleum as oil majors are cutting capex and opex amidst low oil price environment.

Rating

HOLD

Positives

• solid track record and expertise in HUCC.
• captive market for topside maintenance.

Negatives

• difficulties in sourcing O&G engineering talent.

Valuation

• We reduced our target P/E from 11x to 8x given the weak industry outlook and sentiments as WTI fell below US$40/bbl given concerns about oversupply from US Shale and Iran coupled with weakening demand from China.
• We maintain our HOLD call with a lower TP of RM1.60 (previously: RM2.78) after factoring in the reduced target P/E and earnings downgraded.

Source: Hong Leong Investment Bank Research - 26 Aug 2015