Results

• Deemed within expectations: Reported 1Q17 core loss of RM33.2m against HLIB full year forecast of RM44m profit and street forecast of RM66.5m. It is deemed in line as we expect stronger pickup in activities in 2H17.

Deviations

• None.

Highlights

• YoY: Core loss widened to RM33.2m in 1Q17 due to larger losses from its Marine division caused by lower vessel utilisation and higher operating cost on the back of ship maintenance and upgrade in the quarter. This was partially offset by stronger HUC earnings due to uptick in activities.
• QoQ: Core loss was reported against profit of RM17.5m in preceding quarter due to (i) significant drop in utilisation of Marine vessels and (ii) QoQ decline in HUC revenue due to monsoon season resulting in lower activities.
• 1Q17 could have been the worst quarter ever for Dayang due to low Marine division vessel utilisation. We expect utilisation to move up to 75% (from 25% in 1Q17) from mid- 3Q17 as Petronas umbrella contract will commence starting 2Q17 in addition to commencement of another contract for Petronas Carigali for accommodation barge in 4Q17.
• On the other hand, its HUC business (which has seen strong growth in profitability in 1Q17) would be stronger in the coming quarters with activities expected to pick up.
• Dayang is also bidding for Maintenance, construction & modification (MCM) contract from Petronas believed to be worth RM6-8bn in total consisting of several packages, indicating better prospects on orderbook replenishment.
• Recently announced dividend-in-specie for Dayang shareholders in form of Perdana?s share would unlock more value for Dayang as the implied value for Perdana would likely be higher than our implied fair value for Perdana.

Risks

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

Forecasts

• Maintained.

Rating

BUY (↔)

• Completion of incoming corporate exercise would be catalyst for the company with high dividend yield expected to be generated from distribution of dividend-in-specie while medium term outlook is positive for the group due to incoming contracts to be dished out in the sector.

Valuation

• SoP-driven TP is maintained at RM1.42.

Source: Hong Leong Investment Bank Research - 25 May 2017