Dayang has secured a topside major maintenance (TMM) contract from Sarawak Shell and Sabah Shell Petroleum under Package A. The duration of the contract is effective from 29 April 2021 until 19 August 2023. The total contract value is estimated to range from c.RM60-80m based on its previous TMM contracts secured. We estimate its current orderbook to be c.RM2.5bn based on its current work activity, resulting in an orderbook cover of c.3.4x. Maintain BUY at TP of RM1.70 based on 12.5x FY21 EPS and 0.7x P/B for its OSV segment. We believe that Dayang should see a decent recovery in terms of its MCM, i-HUC and TMM work activity from 2Q21.

NEWSBREAK

Dayang has secured a contract for the provision of TMM services for Sarawak Shell Berhad (SSB) and Sabah Shell Petroleum Company (SSPC) under Package A. The duration of the contract is effective from 29 April 2021 until 19 August 2023.

HLIB’s VIEW

Another maintenance contract in the bag. We view this contract win positively and it corroborates with our view on the recovering O&G sector. We believe that the aforementioned contract award can be attributed to higher oil prices and better demand and supply dynamics for O&G of late. The estimated total contract value is expected to be about RM60m to RM80m, based on our checks with its previous TMM contracts. The contract would bring Dayang’s total orderbook to about c.RM2.5bn, resulting in an orderbook cover of c.3.4x.

Outlook. We believe that the O&G market is turning for the better predominantly due to higher oil prices stemming from the recovery of the US and European markets. There was already a flurry of contract awards for jack-up drilling in recent months and we believe that O&G firms in Malaysia like Shell and Petronas would have to start elevating its capex on maintenance activities to make up for the lack of spending in FY20. Hence, we believe that Dayang is poised to record a stellar YoY growth in FY21. However, we expect 1Q21 to be its weakest quarter as activity level has only picked up at a faster pace in 2Q21.

Forecasts. No changes to our forecast as the contract win was within our expectations.

Maintain BUY with TP of RM1.70. We maintain our BUY call an unchanged TP of RM1.70 based on a target PE of 12.5x and 0.7x P/B for its OSV segment as we believe that Dayang should see a decent recovery in terms of its MCM, i-HUC and TMM 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 - 11 May 2021