Results

• Below Expectations: 3QFY15 core PATAMI fell by 78% YoY and 63% QoQ, bringing 9MFY15 core PATAMI to RM83m, making up 54% of HLIB and consensus full -year estimates.

Deviations

• Due to slower orderbook recognition and widening of losses from its subsidiary, Perdana Petroleum.

Highlights

• 3QFY15 core PATAMI (excluding fair value gain of RM82m on equity interest held in Perdana Petroleum and forex loss of RM9.2m) fell by 78% YoY and 63% QoQ mainly due to widening of losses from Perdana Petroleum. Perdana Petroleum cont ributed a loss of approximately RM23.4m in this quarter due to lower vessel utilisation rate (as average vessel utilisation rate fell further from 68% to 55% QoQ) and forex losses.

• The proposed MGO on Perdana at RM1.55 per share has received acceptance rate of close to 98% as of Nov 15. With the consolidation of Perdana business, Dayang’s net gearing has surged to 1.2x. In near term, we expect Perdana to remain loss making as average vessel utilisation is way below the breakeven level of 70%. Coupled with higher financing cost due to increased debt to finance Perdana acquisition, we expect Dayang earnings to be adversely impacted.

• 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 RM4.1bn which will last at least until 2018. Dayang is tendering RM650m worth of contracts.

Risks

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

Forecasts

• FY15 and FY16 earnings forecasts are reduced by 35% and 30% after factoring in slower orderbook recognition and widening of losses from 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 had previously downgraded its P/E from 10x to 8x due to risk of potential earnings downgrade. As weak results have been reflected in the share price performance, we revert the target P/E back from 8x to 10x. Maintain HOLD call with TP adjusted from RM1.60 to RM1.39.

Source: Hong Leong Investment Bank Research - 30 Nov 2015