Dayang’s 2Q21 core profit of RM5.9m (QoQ: -RM24.5m, YoY: -RM1.6m) and 1H21 core loss of -RM18.6m (YoY: RM19.3m) was below our (FY21f: RM74.5m) and consensus’ (FY21f: RM82.5m) expectations due to (i) lower operational capacity due to restrictive SOPs and (ii) lower than expected Petronas capex spending. Hence, we cut our earnings estimates for FY21/22/23 by -73.9/-28.7/-21.3% to account for the weaker than expected results and lower Petronas capex. Nevertheless, we believe that MCM and i-HUC activities should see sequential improvements from 2H21 due to (i) improving oil market outlook, (ii) lower Covid- 19 cases of late and (iii) higher vaccination rates. We believe that the higher revenue during the quarter (+89.9% QoQ) is also a leading indicator towards its path to recovery. Maintain BUY with lower TP of RM1.20 (from RM1.60) based on 10.0x PE (unchanged) on FY22 EPS and 0.7x (unchanged) PB for its OSV segment.

Below expectations. Dayang’s 2Q21 core profit of RM5.9m (QoQ: -RM24.5m, YoY: - RM1.6m) and 1H21 core loss of -RM18.6m was below our (FY21f: RM74.5m) and consensus’ expectations (FY21f: RM82.5m) due to (i) lower operational capacity from to restrictive SOPs and (ii) lower than expected capex spending by Petronas. 1H21 core loss of -RM18.6m was derived after adjusting for EIs amounting to RM30.9m mainly comprising of impairment losses (RM27.9m).

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

QoQ: Dayang recorded a core profit of RM5.9m from a loss of -RM24.5m due to higher revenue as a result of higher HUC activities during the quarter and better weather conditions.

YoY: Dayang’s core profit of RM5.9m vs core loss of -RM1.6m was attributable to the realisation of various cost saving measures implemented in FY21.

YTD. Core loss of -RM18.6m was mainly attributable to lower revenue (-28.9%) from lower Petronas capex on HUC and TMM works.

Outlook. We are still positive on the outlook of Dayang despite its poor showing in 1H21 as we believe that its profitability will continue to improve going forward. We believe that the higher revenue of RM160m (+89.9% QoQ) and core profit of RM5.9m recorded during the quarter is a good leading indicator towards its future prospects. We believe that Petronas would elevate its capex spending in 2H21 to make up for the lack of spending on domestic capex in 1H21 as its 1H21 capex spending was at one of its lowest levels in more than 5 years despite the significant improvements in its 1H21 results.

Forecast. We cut our earnings by -73.9%/-28.7%/-21.3% for FY21/22/23 to account for the (i) weaker than expected results and (ii) lower than expected Petronas capex spending. While we view that Petronas would have a higher propensity to spend in 2H21, our forecast for Petronas capex has been revised down from RM40bn to RM35bn.

Maintain BUY with lower TP of RM1.20 (from RM1.60). We maintain our BUY call with a lower TP of RM1.20 based on 10.0x FY22 EPS and 0.7x (unchanged) P/B for its OSV segment. We believe that Dayang should see a decent recovery in terms of its MCM and i-HUC work activity from 3Q21 onwards. Moreover, its cost optimisation measures carried out in FY20 should be able to cushion any unforeseen decreases in work activity.

Source: Hong Leong Investment Bank Research - 21 Sept 2021