• HLIB has a BUY rating on Dayang with a SOP-derived TP of RM0.91 (+18.2% upside). We remain positive on Dayang amid undemanding valuation at 10.9x FY19 P/E (9% lower than 5-year average P/E of 12x), as earnings upcycle (after a sluggish FY17) is expected to resume with a robust 44% EBITDA CAGR from FY17-19.

• This strong growth is premised on: (i) higher topside maintenance services (TMS), Hook-up and Commissioning (HUC) contracts, Engineering Procurement Construction and Commissioning (EPCC) services amid improving operating climate and renewed activities due to the recovery in oil prices as indicated in the Petronas’ activity outlook for 2017-2019 report and (ii) better utilisation of its 25 offshore support vessels and vessel charter rates. Meanwhile, the fleet utilisation at Perdana (60% subsidiary) should also improve going into 2018 as more than 9 vessels out of a fleet of 16 are earmarked for Dayang’s offshore maintenance, HUC and EPCC contracts, in line with the roll-out of Dayang’s contracts with various oil majors.

• Strong orderbook of RM2.8bn in FY17. In addition, the group is actively bidding for maintenance, construction & modification (MCM) and HUC contracts from Petronas and Pan Malaysia packages, believed to be worth >RM6bn in total consisting of several packages, indicating better prospects on orderbook replenishment.

• Potential downtrend line breakout. Following a base building activity above the 100d SMA on 26 Feb, we believe the stock is grossly oversold and ripe for a technical bounce, supported by undemanding valuations and steady earnings recovery.

• Key resistances are situated at RM0.80 (50% FR) and RM0.82 (downtrend line). A decisive breakout above RM0.82 will likely to lift share prices higher towards RM0.87 (61.8% FR) before testing our LT objective at RM0.92 (23 Feb high). On the flip side, key supports are situated at RM0.735 (100d SMA) and RM0.725 (9 Apr low). A breakdown below RM0.725 will trigger further potential sell down towards RM0.68 (9 Feb low). Cut loss at RM0.705.

Source: Hong Leong Investment Bank Research - 11 Apr 2018