Dayang’s 3Q21 core profit of RM19.7m (QoQ: +237%, YoY: -54%) and 9M21 core profit of RM1.1m (-98% YoY) missed ours and consensus expectations due to: (i) higher than expected operating expenses due to stringent Covid-19 SOPs; and (ii) lower than expected blended 9M21 vessel utilisation rate for its OSV segment. We lower our FY21-23F net profit forecast by -44%, -46% and -73% respectively to reflect lower operating margins and lower vessel utilisation assumptions. We expect Dayang’s performance for the next two quarters (4Q21 and 1Q22) to be subdued due to the monsoon season, affecting both its topside and OSV divisions. Downgrade to HOLD with a lower SOP-derived TP of RM0.89, where we value its offshore division at 15x P/E and 0.75x P/B for its OSV segment.

Missed expectations. Dayang registered a 3Q21 core profit of RM19.7m (QoQ: +237%, YoY: -54%), bringing 9M21 core profit to RM1.1m (-98% YoY). The latter has been adjusted for EIs amounting to RM31.7m mainly comprising of impairment losses (RM27.9m). The results missed ours (FY21f: RM19.4m) and consensus’ (FY21f: RM28.2m) expectations. Key variance against our forecast was due to: (i) higher than expected operating costs due to stringent Covid-19 SOPs; and (ii) lower than expected blended 9M21 vessel utilisation rate for its Marine Charter/OSV segment. A single tier interim dividend of 1.5 sen was declared in 3Q21.

QoQ. Core profit was up more than 3-folds in 3Q21 to RM19.7m due to: (i) higher vessel utilisation rate at 66% as compared to 50% in 2Q21; and (ii) increased work orders received from the group’s topside maintenance, construction and modification (MCM) division, which more than doubled in revenue and operating profits.

YoY. Core profit dipped 54% and this was due to: (i) delayed work orders and contracts from key clients; and (ii) higher operating expenses due to stringent Covid- 19 SOPs (mainly staff quarantine costs).

YTD. 9M21 core profit of RM1.1m dipped 98% because of: (i) lower blended vessel utilisation at 46% in 9M21 (vs. 56% in 9M20); and (ii) lower operating margins due to stringent Covid-19 SOPs (mainly staff quarantine costs).

Outlook. We expect Dayang’s performance for the next two quarters (4Q21 and 1Q22) to be subdued due to the monsoon season, which will affect both its topside and OSV business divisions. We note that Dayang is still struggling to manage its Covid-19 related expenses and we expect it to crimp the group’s profit margins in FY22. Also, we highlight that the group will be focusing on turning around its 63.7%- owned Perdana Petroleum (which is essentially the group’s Marine Charter/OSV business segment) in FY22, which we view as a positive strategy going forward but will require some time to accomplish. Dayang’s order book as at end-September 2021 stood at RM2.1bn (from RM2.3bn as at end-June 2021).

Forecast. We lower FY21-23F net profit forecast by -44%, -46% and -73% to reflect lower operating margins and lower vessel utilisation assumptions.

Downgrade to HOLD, TP of RM0.89. We downgrade Dayang to HOLD (from BUY) with a lower SOP-derived TP of RM0.89 (from RM1.20 previously), where we value its offshore division at 15x P/E and 0.75x P/B for its OSV segment. While we appreciate the group’s initiative and efforts to turnaround its 63.7%-owned Perdana Petroleum, we think that this strategy will require some time to accomplish. Given the nature of the business to be seasonally impacted by the bad and rainy seasons, we expect Dayang’s performance for the next two quarters (4Q21 and 1Q22) to be soft due to the upcoming monsoon season.

Source: Hong Leong Investment Bank Research - 26 Nov 2021