Dayang’s 1HFY18 core net profit of RM29m was above our expectations on stronger offshore TMS segment but was within consensus estimates. Core net profit returned to the black from RM18m core losses thanks to higher offshore TMS work orders and lower depreciation amidst marginal improvement in marine vessel utilisation (48% vs 1H17’s 44%). Overall, we expect more contract win from PM-MCM in the near term while waiting for clearer debt resolution for its 61% owned Perdana (Not-Rated). Increased FY18/19/20 earnings by 29%/26%/25% respectively on higher margins. Maintain HOLD with higher SOP driven TP of RM0.76 (from RM0.68) after change in earnings forecast.

Results above expectations. At 72%/52% of ours/consensus full year estimates, 1H18 core net profit of RM28.8m surpassed our expectations but was within market expectations. The stronger than expected results were due mainly to better than expected contribution from offshore TMS segment.

YoY: 2Q18 core net profit jumped by 76% YoY to RM32.5m mainly due to stronger contribution from marine charter segment, which recorded an operating profit of RM9m from operating losses of RM6m in 2Q17 on the back of stronger utilisation (70% vs 63% in 2Q17).

QoQ: 2Q18 bottom-line also returned to the black from a RM3.7m core losses thanks to better performance from offshore TMS segment (+36% QoQ; higher work orders) and turnaround of marine charter division underpinned by stronger utilisation (vs 27 % in 1Q18) post monsoon season.

YTD: As a result of strong 2Q18, Dayang also registered a core net profit of RM28.8m in 1H18 from RM18.2m core losses in line with 20% increase in topline mainly attributable to pick up in offshore TMS segment (+22%) and narrowed losses in offshore marine segment (-56%; lower depreciation & operating cost) amidst marginal improvement in vessel utilisation (48% in 1H18 vs 44% in 1H17).

More contracts to come in 2H18. Following the announcement of three PM-MCM contracts win lately, Dayang’s total orderbook has exceeded the RM3.0b level spanning until 2023. We expect Dayang to secure more contracts in 2H18 factoring RM1.5b contract replenishment in FY18 (vs YTD win of c.RM800m). Meanwhile, we understand mostly all 16 of Perdana’s (Not-Rated) vessels are chartered out in which 8-9 vessels are working internally for Dayang’s projects, one under long term charter contract and the remaining under spot charters.

Forecast. Increased FY18/19/20 earnings by 29%/26%/25% respectively after imputing higher margins from offshore TMS segment offsetting higher interest cost.

Maintain HOLD, higher TP: RM0.76. Post earnings adjustment, we reiterate HOLD recommendation on the stock with higher SOP-driven TP of RM0.76 with the unchanged assumptions of (i) 10x PER for its offshore TMS earnings and (ii) 0.2x PBV for OSV segment.

Source: Hong Leong Investment Bank Research - 27 Aug 2018