We came away feeling positive from a conference call with Dayang as the group has guided on: (i) increasing OSV charter rates (both AHTS and barge) as the number of OSVs in the market has declined over the years; (ii) higher blended utilisation rates for Perdana’s OSV fleet in 2Q of more than 70%; and (iii) better job win and execution prospects in FY22-23F – as guided from the Petronas Activity Outlook 2022. With that, we believe that 63.7%-owned Perdana will turn into the black in 2Q-3QFY22 – which would also augur well for Dayang. No changes to our earnings estimates. Maintain BUY with a higher TP of RM1.19/share (from RM1.04 previously).

We Recently Met Up With Management With the Following Key Takeaways:

Increasing OSV charter rates and blended fleet utilisation rates. The group has guided that the OSV charter rates has increased by a total of 3-5% YoY as the number of OSVs in the market has declined over the years as many OMS companies have totally exited the industry while some have gone bust following the slump in oil prices from 2015-2020. Also, management has guided that the division’s blended fleet utilisation rates have increased substantially to >70% in 2Q22 (from 38% in 1Q22) – which is higher than the guided net profit breakeven level of 60-65%. With that, we believe that 63.7%-owned Perdana Petroleum will turn into the black in 2Q-3QFY22.

Petronas Activity Outlook 2022 and increase in 2022 capex guidance. The outlook for OSVs are expected to be slightly better in 2022 as there are a total of 336 support vessels (Production: 138; Drilling: 198) expected to be chartered throughout the year as compared to 289 support vessels (Production: 151; Drilling: 138) in 2021. Petronas has guided that there will be consistent demand for vessels supporting production operation over the next three years. Meanwhile, higher HUC and MCM man-hours are also expected for 2022 (HUC: 6.3, MCM: 11.5) as compared to 2021 (HUC: 4.7, MCM: 8.5). Also last week, Petronas raised its 2022 total capex guidance to RM60bn (from RM40-45bn previously). As we deem Dayang the market leader for MCM/i-HUC activities, we are confident that the group will be a major beneficiary of this development.

Subsiding Covid-19 related headwinds in FY22. The group guided that Covid-19 has served as a major headwind, which gave rise to its weak performance in FY20-21 due to several issues: (i) manpower/labour issues and (ii) more stringent Covid-19 related SOPs (which resulted in higher accommodation expenses, testing requirements and quarantine time). Dayang has guided that these headwinds are waning off in FY22 and the group should be able to execute its jobs more efficiently. We highlight that the group’s current outstanding orderbook stands at RM1.8bn, which will provide earnings visibility until end-FY23 and has a tenderbook of cRM800m.

Forecast. Unchanged.

Maintain BUY, higher TP of RM1.19. We maintain BUY on Dayang with a higher SOP-derived TP of RM1.19/share (from RM1.04 previously), where we value its offshore division at 13x P/E on FY23f earnings and 0.8x P/B for its OSV segment.

Source: Hong Leong Investment Bank Research - 15 Jun 2022