We deem Dayang’s 1Q22 core profit of RM13.8m (QoQ: -67%, YoY: -RM24.5m) to be above our expectations but within consensus full-year earnings forecasts at 25% and 22% respectively. Key variance against our forecast was to betterthan-expected work orders from Dayang’s topside maintenance segment in 1Q22 – as we had earlier presumed that the group would have been badly impacted by the monsoon season throughout the quarter, but was less profound than expected. We expect Dayang’s performance for the upcoming quarters in FY22 to improve, based on: (i) increased job executions from its iHUC and MCM division; and (ii) higher blended vessel utilisation from its OMS division. Upgrade to BUY with a higher SOP-derived TP of RM1.04, where we value its offshore division at 11x P/E on FY23F earnings and 0.8x P/B for its OSV segment.

Above ours, within consensus. We deem Dayang’s 1Q22 core profit of RM13.8m (QoQ: -67%, YoY: -RM24.5m) to be above our expectations but within consensus fullyear net profit forecasts at 25% and 22% respectively. Key variance against our forecast was to better-than-expected work orders from Dayang’s topside maintenance segment in 1Q22 – as we had earlier presumed that the group would have been badly impacted by the monsoon season throughout the quarter, but was less profound than expected.

Dividends. No Dividends Were Declared, as Expected.

QoQ. Core profit dipped -67% to RM13.8m due to lower blended utilisation rate of 25% in 1Q22 (vs. 38% in 4Q21). We believe that this was caused by the monsoon season in 1Q22 and is typically Dayang’s seasonally weakest quarter annually.

YoY. Core profit spiked to RM13.8m in 1Q22 and this was due to: (i) increased job execution from its topside division where revenue and operating profits spiked 95% and 340% YoY respectively; and (ii) higher blended vessel utilisation rate of 25% in 1Q22 vs. 20% in 1Q21 – which boosted the Marine Charter division’s revenue by 94% YoY.

Outlook. We expect Dayang’s performance to improve for the next few quarters as recent ground checks and conversation with management has indicated: (i) improved job orders due to lesser Covid-19 related restrictions; (ii) lesser Covid-19 related expenses; and (iii) improved projected blended vessel utilisation rates YoY for Perdana Petroleum in FY22. Petronas Activity Outlook 2022-2024 has indicated significant improvement in both HUC and MCM man-hours by 35% this year. 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. Dayang’s order book as at end-March 2022 stood at RM1.8bn (from RM1.9bn as at end-December 2021).

Forecast. We raise our FY22-23f earnings estimates by 10% and 1% respectively to account for (i) increased job win assumption from its i-HUC and MCM division; and (ii) higher blended vessel utilisation rate assumption for its OMS division.

Upgrade to BUY, TP of RM1.04. We upgrade Dayang to BUY with a higher SOPderived TP of RM1.04 (from RM0.89 previously), where we value its offshore division at 11x P/E on FY23f earnings and 0.8x P/B for its OSV segment.

Source: Hong Leong Investment Bank Research - 20 May 2022