We came away feeling positive from a conference call with Dayang as we highlight: (i) soaring OSV charter rates (both AHTS and Barge) as there were no new major additions of new vessels in the market for the past 6 -7 years; (ii) higher blended utilisation rates for Perdana’s OSV fleet in 3Q; and (iii) better job win and execution prospects in FY22-23F – as indicated from the Petronas Activity Outlook 2022. We expect Dayang’s strong 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 a higher SOP-based TP of RM1.26.

We recently hosted a conference call with Dayang’s key management with the following key takeaways:

Soaring OSV charter rates. From our ground checks, we gather that OSV daily charter rates have increased by about 10-15% YoY as there were no new vessels in the market for the past 6-7 years as many OMS companies have totally exited the industry while the others have gone bust following the depressed oil price environment from 2015-2020. From the conference call, we understand that the group’s fleet blended utilisation rate will continue to increase in 3Q22 to 75% (from 66% in 2Q22) and is targeted to reach a range of about 60-65% for the entirety of FY22 (vs. 44% in FY21).

Petronas Activity Outlook 2022 – higher job allocation for MCM/i-HUC and OSV divisions. The outlook for OSVs is expected to be significantly better in 2022 as a total of 336 support vessels (Production: 138; Drilling 198) are expected to be chartered throughout the year as compared to 289 support vessels (Production: 151; Drilling: 138) in 2021. Also, Petronas has indicated that there will be consistent demand for vessels supporting production operation over the next 3 years. Meanwhile, higher i-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 recently, Petronas has raised its 2022 total capex guidance to RM60bn (from RM40-45bn previously). As we deem Dayang to be the market leader for i-HUC/MCM 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. We raise our FY22-24f earnings estimates by 14%, 8% and 12% respectively mainly to account for higher profit margin assumption for its topside maintenance (i-HUC and MCM) division for the year.

Maintain BUY, TP of RM1.26. We maintain BUY on Dayang with a higher SOP derived TP of RM1.26/share (from RM1.19/share 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 - 20 Sept 2022