Dayang’s FY19 core profit of RM227.3m was above our/consensus expectations due to robust contribution from both offshore TMS and marine charter segments. We can expect Dayang the momentum to continue into FY20 in tandem with the uptick in upstream activities. However we note that 1Q20 will be a seasonally weaker quarter as workflows slow down due to the monsoon. Prospects are underpinned by its existing orderbook of c. RM4.5bn post award of the I-HUC and MCM contracts won recently. Maintain our HOLD call and TP of RM2.69 based on 13.7x PER (+1.5SD above 2 year mean) pegged to FY20 earnings.

Above expectations. 4Q19 core net profit of RM67.1m (-39.4% QoQ, -28.2% YoY) brings FY19’s total core net profit to RM227.3m (+37.0% YoY). At 114%%/110% of our/consensus full year estimates, this is above expectations. The stellar earnings are attributed to significantly stronger contribution from both offshore TMS and marine charter segments on a full year basis. No dividend was declared, as expected. We arrived at our core profit at adjusting for EI’s amounting to RM 22.3m (mainly consisting of (i) RM11.2m gain on purchase (ii) 1.6m FX gains (iii) RM8.7m reversal of impairments).

QoQ: Dayang’s core profit declined to RM67.1m (-39.4% QoQ, reported profit: RM78.2m) on lower revenues (-20.3% QoQ) due to lower work orders from its offshore TMS segment (Operating profit: -3.4% QoQ) and marine charter segment (Operating profit: -44.2% QoQ) as a result of lower vessel utilisation at 74% vs 3Q19’s 91%. We arrived at our core profit after adjusting for (i) RM4.9m – gain from Perdana, (ii) RM5.3m net reversal of impairment/accruals and (iii) RM2.3m in FX gains.

YoY: 4Q19 core profit declined by 28.2% from RM93.4m in 4Q18 due to lower contributions from the marine charter division (EBIT margin of 25.9% vs. 29.1% in 4Q18), higher D&A expense (+35.8% YoY) and a higher effective tax rate (+12.7 ppts vs. SPLY).

YTD: FY19 core earnings jumped 37% from RM165.9m YoY stronger work orders from both MCM and TMS works under the Pan HUC contract on better margins, the EBIT level: 42.6% (+8.7ppts YoY). This was also aided by a turnaround at the marine charter segment (PBT RM16.7m vs. –RM20.7m SPLY) due to stronger vessel utilisation of 70% vs. 64% YoY and improved rates of c.15% YoY.

Outlook. We can expect Dayang the momentum to continue into FY20 in tandem with the uptick in upstream activities. However we note that 1Q20 will be a seasonally weaker quarter as workflows slow down due to the monsoon. Prospects are underpinned by its existing orderbook of c. RM4.5bn post award of the I-HUC and MCM contracts won recently.

Forecasts. Unchanged. Although the results are stellar we are keeping our forecasts for now as we had just upgraded earnings by ~17% in our previous reports. The key concerns for 2020 will be if the Covid-19 virus will have an impact on work orders from Petronas. (We understand that import of materials may be delayed which would result in a delay of work being undertaken).

Maintain HOLD, TP: RM2.69. Maintain our TP of RM2.69 based on 13.7x PER (+1.5SD above 2 year mean) pegged to our FY20 earnings. At this juncture we are of the opinion that the market has priced in the strong earnings delivery.

Source: Hong Leong Investment Bank Research - 24 Feb 2020