Results

• Below expectations: 3Q17 core net profit came in at RM10.8m, bringing 9M17 core loss to –RM4.0m. Below HLIB (RM33m profit) and consensus (RM30.4m profit) estimates.

Deviations

• Weaker than expected charter rate for Marine segment.

Highlights

• YoY: Core net profit plunged 55% due to: (i) higher losses in Marine segment due to weaker vessel charter rates; and (ii) weaker HUC profits due to lower profit margins of work done for contracts.

• QoQ: Profit weakened by 41.3% due to lower margin of work done for its HUC contracts, but was partially offset by narrower losses from Marine segment due to ramp up in vessel utilisation.

• 9M17: Dipped into loss of -RM4m from core profit of RM2.1m in 9M16 mainly due to higher losses in Marine segment as a result of lower vessel utilisation and weaker vessel charter rate. Nevertheless, stronger performance of HUC driven by higher margins arising from cost savings has helped to partially offset the Marine weakness.

• Dividend in specie in the form of Perdana shares went ex on 14 th Nov 2017. The reference price of Perdana share is at RM0.96 while Dayang’s share price has been reduced to RM0.58 as a result of the exercise after adjusting for adjustment ratio of 0.302 Perdana share for 1 Dayang share owned.

• Implied value for Perdana of RM0.96 would be RM0.77 after conversion to Dayang share base. This is more than double of our assumed fair value of RM0.31/share for Perdana’s business.

• The exercise will be completed by 23 rd Nov 2017, giving Dayang shareholders an opportunity to realize the dividends in form of Perdana shares.

• Outlook: 2018 will be a better year for the group on the back of contribution of MCM contracts (from Petronas) and ramp up in HUC contract. Marine segment is expected to achieve higher vessel utilisation as a result of higher activities in the sector.

Risks

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

Forecasts

• Cut FY17/18/19 forecasts by 62/3/32% to account for higher losses from Marine segment and adjustment to MI earnings post dividend in specie.

Rating

BUY ( ↔ )

• The completion of dividend in specie would remove the overhang on delay of relisting of Perdana shares. This would better reflect the value of the group’s stake in Perdana. Earnings recovery is also expected in 2018.

Valuation

• SoP-driven TP is cut to RM0.93 from RM1.20 post earnings cut and adjustment of dividend in specie.

Source: Hong Leong Investment Bank Research - 22 Nov 2017