Dayang’s 9MFY18 core net profit of RM72m was above our/consensus expectations on stronger offshore TMS segment. Core net profit returned to the black from RM7m core losses thanks to higher offshore TMS work orders and lower depreciation amidst marginal improvement in marine vessel utilisation (61% vs 9M17’s 53%). Increased FY18/19/20 earnings by 50%/24%/12% respectively on higher margins. Maintain BUY with higher SOP-driven TP of RM0.86 (from RM0.79) after change in earnings forecast.

Results above expectations. At 138%/124% of ours/consensus full year estimates, 9M18 core net profit of RM72.4m surpassed our/consensus expectations. The stronger than expected results were due mainly to better than expected contribution from offshore TMS segment.

QoQ: 3Q18 core net profit increased by 35% QoQ to RM43.6m mainly due to stronger contribution from offshore TMS segment (+7% QoQ; higher work orders) and marine charter segment on the back of stronger utilisation (84% vs 70% in 2Q18).

YoY: 3Q18 bottom-line also jumped by 3.0x YoY thanks to better performance from offshore TMS segment (+76% YoY; higher work orders) and marine charter division underpinned by stronger utilisation (vs 70% in 3Q17).

YTD: Dayang also registered a core net profit of RM72.4m in 9M18 from RM7.4m core losses in line with 25% increase in topline mainly attributable to pick up in offshore TMS segment (+38%) and turnaround of marine charter segment amidst marginal improvement in vessel utilisation (61% in 9M18 vs 53% in 9M17).

First foreign contract win. Dayang been awarded a subcontract by Gujurly Inzener for the provision of facilities maintenance support in Turkmenistan operated by Petronas Carigali (Turkmenistan) Sdn Bhd (PC(T)SB). The contract duration is for a firm 3 years effective from 1 Jan 2019 with an extension option of another 1 year. Given that the contract is on a call-out basis, we estimate this new contract could be worth up to USD100m and will lift its YTD win to RM1.3bn, accounting 88% of our orderbook replenishment of RM1.5bn in FY18.

Restructuring. Dayang’s 60.5% owned Perdana (Not-Rated) has started its discussion with the respective financiers/Sukuk-holders on the proposed restructuring scheme (PRS) involving measures such as extension of tenure of borrowings, disposal of 2-3 vessels without contracts and negotiation of interest rate cut.

Forecast. Increased FY18/19/20 earnings by 50%/24%/12% respectively after imputing higher margins from offshore TMS segment.

Maintain BUY, higher TP: RM0.86. Post earnings adjustment, we reiterate BUY recommendation on the stock with higher SOP-driven TP of RM0.86 with the unchanged assumptions of (i) 10x PER for its offshore TMS earnings and (ii) 0.3x PBV for OSV segment.

Source: Hong Leong Investment Bank Research - 26 Nov 2018