News

• Dayang announced that it has been awarded a cont ract by Kebabangan Petroleum Operating Company Sdn Bhd ("KPOC" ) for the Provision of Topside Maintenance Services for KPOC.

• The Contract is for a period of two (2) years commencing on 16 March 2016, with an option to extend for another one (1) year. The contract value is approximately between RM25.0m and RM42.0m. Financial Impact

• Not a signi ficant contract win and we deem it within expectations as it accounts for a small portion of our contract replenishment assumption amounting to RM600.0m for 2016.

• Operating margins are expected to be at circa 15%, consistent with its historical performance. This translates into circa RM2.0m operating profit p.a. assuming lowest contract value worth RM25.0m.

• We anticipate more maintenance jobs to come in 2H16 as Petronas recalibrates its budget. Despite the challenging industry environment, we believe maintenance activities for O&G industry would still be resilient given the industry’s more inelastic demand for maintenance activities which ensure quality safety standards for platforms.

Pros/Cons

• Cont ract win is positive albeit marginal in terms of earnings impact.

• 2016 would still be a tough year for the company but longer term prospects are still intact post acquisition of Perdana Petroleum, which gives the company an edge on asset availability to bid for next round of Umbrella contract.

• Notwithstanding the contract award, earnings recognition on orderbook remains a risk in the near term due to its high variability whereby clients could alter work schedule on monthly basis depending on industry outlook.

Risks

• Delay in cont ract disbursement, earnings risks from Perdana Petroleum due to weak OSV market.

Forecasts

• Unchanged.

Rating

• Hold

Positives

• Solid track record on HUC project execution.

Negatives

• Exposure to volatile OSV market.
• Potentially lower work order on current HUC orderbook.

Valuation

• TP is maintained at RM1.37 based on FY16 10x forward PER. While we are encouraged by the company’s long term prospects, we believe near term earnings risks are high which could weigh on the near term share price movements.

Source: Hong Leong Investment Bank Research - 26 Apr 2016