Dayang secured a new 15 months contract from Petronas Carigali for the provision of Hook-up, Commissioning and Topside Major Maintenance Services. We estimate this contract is worth c.RM100m-RM300m, bringing its YTD sum to RM600m-RM800m (or 75%-100% of our replenishment assumptions). For conservative purposes and given that this award is a call out contract, we keep our earnings forecast unchanged. Maintain BUY with ex rights TP of RM1.65.

NEWSBREAK

Dayang has been awarded a new contract by Petronas Carigali for the provision of Hook-up, Commissioning and Topside Major Maintenance Services. The duration of the contract is for 15 months effective from 16th August 2019 and expires on 15th November 2020. We understand that the contract is a call-out contract and the total value ranges between RM100m-RM300m over its duration.

HLIB’s VIEW

This award will lift its YTD win to c.RM600m-RM800m, accounting for 75% -100% of our orderbook replenishment estimates in FY19. Recall that Dayang had earlier announced two contracts wins this year, (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 RM500m. We reckon that Dayang may be able to secure more than what we have assumed, banking on the I-HUC package by Petronas.

We reiterate that we are not overly concerned by the news of I-HUC contract cancellation as Dayang would still be able to receive work orders from Petronas via an extension or additional farm-in contracts which has manifest in this award. Furthermore, we understand that Dayang’s 60.5% owned Perdana (Not-Rated) is eyeing to achieve average utilisation >80% in 2H19 (vs 57% in 1H19). With that, Perdana stands a good chance to breakeven in 2H19.

Forecasts. Unchanged as the award is within expectations.

Maintain BUY and ex-rights TP: RM1.65. Maintain our SOP based TP of RM1.65 on an ex-rights basis (RM1.73 on cum rights basis). The on-going restructuring plan will allow Perdana’s net gearing to improve significantly to 0.15x (from 1.3x) while Dayang’s net gearing to improve marginally to 0.61x (from 0.77x). This eliminates investors’ concerns over Perdana’s going concern issue amidst strengthening its balance sheet. Maintain BUY on the stock with the expectations of strong earnings delivery backed by robust work flow.

Source: Hong Leong Investment Bank Research - 4 Sept 2019