Dayang recorded a superb 2Q22 core net profit of RM40.6m (+339 % QoQ, +592% YoY), which brought 1H22 to a core net profit of RM49.9m (1H21: -RM18.6m). We deem the group’s stellar showing in 1H22 to be above expectations at 83%/76% of our/consensus full-year estimates. The positive results surprise was due to better-than-expected work orders from Dayang’s topside maintenance segment in 1H22 and improved blended fleet utilisation rates for its OSV segment. We expect Dayang’s performance to sustain in 3Q22 as recent ground checks and conversation with management has indicated: (i) improved job orders due to lesser Covid-19 related restrictions; (ii) fewer Covid-19 related expenses; and (iii) improved projected blended vessel utilisation rates YoY for Perdana Petroleum in FY22. Maintain BUY with an unchanged SOP-based TP of RM1.19.

Beat expectations. Dayang recorded a superb 2Q22 core net profit of RM40.6m (+339% QoQ, +592% YoY) which brought 1H22’s sum to RM49.9m (1H21: -RM18.6m) after having adjusted for: (i) RM3.6m of insurance claims; (ii) RM1.4m on reversal of impairment of receivables; and (iii) RM0.9m on unrealised gains on forex. The positive results surprise – at 83%/76% of ours/consensus full year forecast – was due to better-than-expected work orders from Dayang’s topside maintenance segment in 1H22 and improved blended fleet utilisation rates for its OSV segment.

Dividends. No dividends were declared, as expected.

QoQ. Core profit spiked more than 4x QoQ to RM40.6m due to: (i) increased work orders for its topside maintenance segment as a result of the withdrawal of movement restrictions and elevated oil prices, resulting in more jobs being awarded from oil majors throughout the quarter; and (ii) higher blended fleet utilisation rate of 66% in 2Q22 (vs. 25% in 1Q22). The group’s topside division’s revenue and operating profits increased by 68% and 24% QoQ respectively.

YoY. Core profit spiked almost 7x to RM40.6m in 2Q22 and this was due to: (i) increased job execution from its topside division where revenue and operating profits spiked 85% and almost 10x YoY respectively; and (ii) higher blended fleet utilisation rate of 66% in 2Q22 (vs. 50% in 2Q21), which boosted the OSV division’s revenue by 34% YoY.

YTD. Dayang turned into the black with a core profit of RM49.9m in 1H22 (vs. losses of -RM18.6m in 1H21) due to similar reasons mentioned above. The OSV segment’s blended fleet utilisation rate stood at 46% in 1H22 (vs. 36% in 1H21).

Outlook. We expect Dayang’s performance to sustain in 3Q22 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-June 2022 stood at RM1.7bn (from RM1.8bn as at end-March 2022). The group’s net gearing ratio stood at 0.1x, which we deem to be healthy.

Forecast. We raise our FY22f earnings estimates by 39% mainly to account for higher profit margin assumption for its topside maintenance (i -HUC and MCM) division for the year. We leave our FY23-24f estimates unchanged.

Maintain BUY, TP of RM1.19. We maintain BUY on Dayang with an unchanged SOP-derived TP of RM1.19/share, 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 - 19 Aug 2022