Dayang’s share price has retraced -38% from its peak, suggesting that the market has priced in the negatives impact from seasonally weak 1Q19 results and overhang from the proposed restructuring plan. Therefore, we advocate investors to revisit the counter by upgrading to BUY (from Hold) rating with cum/ex-TP of RM1.26/RM1.21 after increasing our earnings estimates and ascribing higher multiples in our SOP. This is premised on potential contract win of I-HUC from Petronas Carigali and stronger quarterly results both YoY and QoQ.

YTD wins. Dayang has announced two contract wins this year, which are (i) 5+1 year Pan Malaysia-Maintenance, Construction and Modification (PM-MCM) contract from SEA Hibiscus Sdn Bhd and (ii) 4+1 year Procurement, Construction, Installation, Hook-up and Commissioning Services contract from Roc Oil. We estimate that these 2 contracts are cumulatively worth RM250m and hence, YTD wins have accounted for 62% of our RM800m FY19 contract replenishment assumption. We reckon that Dayang may be able to secure more than what we have assumed, banking on the I HUC package by Petronas.

I-HUC is coming? We gather that Dayang has participated in Petronas’ tender, I HUC (restructured from existing HUC and Topside Major Maintenance contract) and could be awarded earliest by 3Q19. Note that Dayang was the incumbent for Peninsular Malaysia while Petra Energy (Not-Rated) and non-listed Coral Alliance were responsible for the East Malaysia region. Dayang’s original 5-year contract is worth RM1.35bn but only RM600m-700m work orders were being called out due to spending cut by client upon the industry downturn. This round, we understand that the total tender could worth up to RM4bn and we believe Dayang is capable of securing RM500m-RM1bn given its strong track record.

Marine segment. Excluding the recently awarded umbrella contracts by Petronas’ Petroleum Arrangement Contractors’ (PACs) Drilling and Project Activities, Perdana’s total outstanding orderbook stood at RM269m as of May-19. 11 out of 20 vessels (including the 3rd party vessels) have secured >6 month contracts from the oil major and 8 vessels are chartered to Dayang for in-house jobs. Therefore, Perdana’s 2Q19 vessel utilisation is expected to be stronger YoY (2Q18: 48%) and stronger QoQ (vs 1Q19: 36%). Overall, Perdana is targeting full year vessel utilisation of 70% this year, a slight improvement from 64% in FY18.

Forecast. We increase FY19/20/21 earnings by 18%/16%/8% after factoring higher orderbook replenishment of RM1.2bn from RM800m previously in FY19 coupled with better margins from the work orders received.

Upgrade to BUY, ex-TP: RM1.21. Post earnings adjustment, TP is increased to RM1.21 (from RM0.88) on an ex-rights basis (RM1.26 on a cum right basis) based on higher valuation of 10x FY19 PER (from 9x) for TMS segment and 0.6x PBV (from 0.3x) for OSV segment. We believe both segments warrant higher multiple in view of robust work flow in the near-medium term. The announcement of restructuring also eliminates investors’ concerns over Perdana’s going concern issue amidst strengthening its balance sheet. Note that share price has retraced -38% from its peak, suggesting that the market has priced in the negatives impact from seasonally weak 1Q19 results and potential earnings dilution from the on-going proposed restructuring (including 10% private placement and 10% rights issue). Therefore, we advocate investors to revisit the counter by upgrading to BUY (from Hold) rating with potential contract win of I-HUC from Petrronas Carigali and stronger quarterly results in terms both YoY and QoQ being the major stock catalysts.

Source: Hong Leong Investment Bank Research - 20 Jun 2019