Dayang’s FY18 core net profit of RM166m was above our/consensus expectations on stronger offshore TMS segment. Core net profit returned to the black from RM5m core losses thanks to higher offshore TMS work orders and lower depreciation amidst marginal improvement in marine vessel utilisation (52% vs FY17’s 64%). Increased FY19/20 earnings by 10%/6% respectively on higher margins. Maintain BUY with higher SOP-driven TP of RM0.91 (from RM0.78) post earnings adjustment.

Results above expectations. At 212%/211% of ours/consensus full year estimates, FY18 core net profit of RM165.9m surpassed our/consensus expectations. The stronger than expected results were due mainly to better than expected contribution from offshore TMS segment in 4Q18. No dividend was declared, as expected.

QoQ: 4Q18 core net profit increased by 114% QoQ to RM93.4m mainly due to stronger contribution from offshore TMS segment (+80% QoQ; higher margins from lump sum work orders).

YoY: 4Q18 bottom-line also jumped by 3.4x YoY thanks to better performance from offshore TMS segment (+4.5x YoY; higher work orders & margins) and marine charter division underpinned by stronger utilisation of 73% (vs 51% in 4Q17).

YTD: Dayang also registered a core net profit of RM165.9m in FY18 from RM4.7m core losses on the back of 35% increase in topline mainly attributable to pick up in offshore TMS segment (+37%) and turnaround of marine charter segment amidst marginal improvement in vessel utilisation (64% in FY18 vs 52% in FY17).

Outlook. The exceptional strong performance in 4Q18 is mainly due to ramp up in offshore activities and additional work orders from existing contracts. Moving forward, Dayang is hopeful to receive robust work orders in 2019 with its existing orderbook of RM3.0bn. However, we expect the gross margins to moderate from 57% in 4Q18 to >30% in FY19. On the other hand, Dayang’s 60.5% owned Perdana (Not-Rated) is also targeting full year vessel utilisation of 70% this year, slight improvement from 64% in FY18.

Restructuring. Perdana 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. A third CDRC meeting was held to provide milestone updates and proposed scheme enhancement to all lenders. The CDRC program is expected to be completed by early 2020, 18 months from the date of admission, 2 July 2018.

Forecast. Increased FY19/20 earnings by 10%/6% respectively after imputing higher margins from offshore TMS segment.

Maintain BUY, higher TP: RM0.91. Post earnings adjustment, we reiterate BUY recommendation on the stock with higher SOP-driven TP of RM0.91 with the unchanged assumptions of (i) 9x PER for its offshore TMS earnings and (ii) 0.3x PBV for OSV segment.

Source: Hong Leong Investment Bank Research - 25 Feb 2019