Dayang’s 9M19 core profit of RM160.2m was above our/consensus expectations due to robust contribution from both offshore TMS and marine charter segments. Increase FY19/20/21 earnings by 31%/7%/8% after imputing higher contribution from both offshore TMS and marine charter segments on stronger margins. Post earnings adjustment, TP is increased to RM2. 30 (from RM1.90) based on a higher PER of 13.7x (1.5SD above its 2 year mean – from 12x) pegged to our FY20 earnings. We feel this is justified given the stellar earnings coupled with Perdana’s recent turn around which should serve as a strong base going into FY20 when its gearing decreases significantly post restructuring – against a backdrop of increasing DCR’s for the OSV market as upstream activity by the oil majors pick up steam.

Significantly above expectations. 3Q19 core net profit of RM110.8m (+104.5% QoQ, +154% YoY) brings 9M19’s total core net profit to RM160.2m (+121.2% YoY). At 105%%/115% of our/consensus full year estimates, this is significantly above our expectations. The stellar earnings are attributed to significantly stronger contribution from both offshore TMS and marine charter segments. No dividend was declared, as expected.

QoQ: Dayang’s core profit jumped to RM110.8m (+104.5% QoQ) helped by stronger performances from both its operating segments (i) offshore TMS segment (Operating profit: +70% QoQ; higher work orders) and marine charter segment (Operating profit: 1.5x QoQ) as a result of stronger vessel utilisation at 91% vs 2Q19’s 79%. We arrived at our Core profit after adjusting for (i) RM10.6m – gain from Perdana, (ii) RM3.7m reversal of impairment/accruals and (iii) RM0.4m in FX losses.

YoY: 3Q19 core profit widened by 154% from RM43.6m in 3Q18 thanks to stronger offshore TMS segment (+107% YoY; higher lump sum work orders & margins). This was further backed by better marine charter division underpinned by stronger utilisation of 91% (vs. 84% in 3Q18).

YTD: 9M19 core earnings jumped 121% from RM72.4m YoY on better EBIT margins for offshore OMS segment to 38.8% (from 28.5% in 9M18) as well as narrowed losses for marine charter segment (LBT RM1.2m vs. RM37.5m SPLY) as a consequence of better utilisation of 68% (vs 60% in (9M18) and an uptick in DCR YoY.

Outlook. We expect Dayang to record its strongest finish ever in FY19 in tandem with the uptick in upstream activities. However we note that 4Q may result in a weaker quarter as workflows slow down as the annual monsoon season gains traction. Management signalled that post restructuring – they will be in a stronger position to reward shareholders. Note that the last time Dayang paid a cash dividend was in 2015. Dayang’s FY20-21 prospects are underpinned by its existing orderbook of c. RM2.5bn.

Forecasts. Increase FY19/20/21 earnings by 31%/7%/8% after imputing better margins for both offshore TMS and marine charter segments.

Maintain BUY, higher TP: RM2.30. Post earnings adjustment, TP is increased to RM2.30 (from RM1.90) based on 13.7x PER pegged to our FY20 earnings (+1.5SD above its 2-year mean). We feel this is justified given the stellar earnings coupled with Perdana’s recent turn around which should serve as a strong base going into FY20 when its gearing decreases significantly post restructuring – against a backdrop of increasing DCR’s for the OSV market as upstream activity by the oil majors pick up steam.

Source: Hong Leong Investment Bank Research - 25 Nov 2019