Dayang’s 4Q20 core profit of RM17.5m (-59.4% QoQ, -74.0% YoY) and FY20’s sum of RM79.8m (-64.9% YoY) was within our expectations but above consensus, constituting 100% and 123% of respective forecasts. We increase our earnings estimates for FY21/22f by 14.2/9.5% as we believe that MCM and i-HUC activities should pick-up in FY21 due to the improving oil market outlook. Upgrade to BUY from Hold at TP of RM1.70 based on PE of 12.5x (from 9x) FY21 EPS and 0.7x (from 0.6x) PB for its OSV segment.

Within expectations. Dayang’s 4Q20 core profit of RM17.5m (-59.4% QoQ, -74.0% YoY) and FY20’s sum of RM79.8m (-64.9% YoY) was within our expectations (100%) but above consensus (123%). FY20 core profit of RM79.8m was derived after adjusting for total EI sum amounting to RM22.3m, mainly comprising of impairments from Perdana amounting to RM21.2m.

Dividend. No dividends were declared during the quarter, none for the year (none SPLY).

QoQ: Dayang’s core profit declined by 59.4% due to lower QoQ work orders for its TMS segment as there were additional backlogs of work orders in 3Q20 (higher base), which was carried over from 2Q20.

YoY: Core profit declined by 74.0% due to steep declines in work orders from Petronas as a result of lower oil prices in FY20 from the Covid-19 Pandemic.

YTD: Core earnings declined to RM79.8m (-64.9% YoY) due lower work orders for its i-HUC and PM-MCM segments due to the coronavirus and the global oil market glut.

Outlook. We believe that MCM and i-HUC work activities should increase this year as a result of higher oil prices and Malaysia’s economic recovery due to the timeline of vaccine rollouts. We view that the substantial deferments in work orders in FY20 should have some spillover effect in FY21. However, we do not anticipate Petronas to elevate its Capex to pre-Covid levels this year due to its dividend commitments but we expect a more material elevation in capex in FY22. OSV activities is also expected to pick-up sequentially, in-line with Petronas’ capex spending trend.

Forecast. We upgrade our earnings by 14.2/9.5% for FY21-22F to account for its better prospects ahead despite FY20 earnings meeting our forecasted numbers.

Upgrade to BUY with higher TP of RM1.70. We upgrade to a BUY call (from Hold) with a higher TP of RM1.70 based on a target PE of 12.5x (from 9x) and 0.7x (from 0.6x) P/B for its OSV segment as we believe that Dayang should see a decent recovery in terms of its MCM and i-HUC work activity. Moreover, its cost optimisation measures carried out in FY20, should result in higher profit margins for the Company going forward.

Source: Hong Leong Investment Bank Research - 25 Feb 2021