Dayang Has Been Awarded a Second Contract in 2020 by Petronas Carigali for the Provision of Modification Works (Umbrella Contract) for Block B-17 & C-19 and B-17-01. The Contract Value Is Not Stated Given That It Is An Umbrella Contract; However We Estimate That the Award Is Worth C. RM300m-RM400m. The Award Is for Duration of 3 Years + 2 Years Extension Option. Increase FY20-21 Earnings by ~17% as We Factor in Sustained Man Hour Requirements for HUC and MCM Work in 2020-2021 as Per the Updated Petronas Activity Outlook. Post Forecast Recalibration, TP Is Increased to RM2.69 (from RM2.30) Based on 13.7x PER (1.5SD Above 2 Year Mean) Pegged to Our FY20 Earnings. We Downgrade the Stock to a HOLD Given Its Run Up by 33.8% Since Our Upgrade in November. At This Juncture We Are of the Opinion That the Market Has Priced in the Expectations of Strong Earnings Delivery in FY19.

NEWSBREAK

Dayang announced that it has been awarded a contract by CARIGALI-PTTEPI Operating Company Sdn. Bhd. ("CPOC") for the provision of modification works (Umbrella Contract) for Block B-17 & C-19 and B-17-01. The value of the contract is based on work orders issued by Petronas throughout the contract duration. The duration of the contract is effective from 30th January 2020 for a period of three years with two years extension option. The contract value is not stated given that it is an umbrella contract; however we estimate that the award is worth c. RM300m -RM400m over the 3 year period.

HLIB’s VIEW

The momentum continues. This is Dayang’s second award in 2020 and lifts YTD wins to c.RM475m-RM633m. Recall that Dayang had earlier announced 2x I-HUC packages (Petronas Carigali: Package B - SBA and Package D - SKO) worth an estimated RM1.5bn-RM2.0bn over a 4 year period. This award lifts Dayang’s orderbook to c.RM4bn-RM5bn (call out - to be executed over a horizon of the next 4 years). We understand that Block B-17 & C-19 and B-17-01 is at the joint Thai Malaysian areas.

Outlook. We continue to 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 softer quarter as workflows slow down as the annual monsoon season gains traction.

Forecasts. We are keeping our FY19 earnings intact; however we are increasing our FY20-21 earnings by ~17% as we factor in sustained man hour requirements for HUC and MCM work in 2020-2021 as per the updated Petronas Activity Outlook.

Higher TP of RM2.69 but downgrade to HOLD. Post forecast recalibration, TP is increased to RM2.69 (from RM2.30) based on 13.7x PER (+1.5SD above 2 year mean) pegged to our FY20 earnings. We downgrade the stock to a HOLD given its run up by 33.8% since our upgrade in November. At this juncture we are of the opinion that the market has priced in the expectations of strong earnings delivery in FY19.

Source: Hong Leong Investment Bank Research - 5 Feb 2020