Dayang announced that it has been awarded a contract extension for the provision of offshore maintenance, construction and modification (MCM) services from Petronas Carigali. The job is expected to commence from 20 Sept 2022 till 31 December 2023 (15 months). We estimate the contract value to range between RM50-60m. From our ground checks, we understand that the OGSE players are currently benefitting from price hikes across the board for multiple value chains – i.e. i-HUC, MCM, OSVs, Drilling rigs etc. We strongly believe that this is due to the prolonged elevated crude oil price environment where the sector’s service providers are finally benefitting from the increase in local and regional capex from oil majors. We are mildly positive on this development. Maintain BUY with an unchanged SOP-based TP of RM1.26.

NEWSBREAK

Dayang announced that it has been awarded a contract extension for the provision of offshore maintenance, construction and modification (MCM) services from Petronas Carigali.

HLIB’s VIEW

Key highlights. We note a few key salient points, as below:

1) We estimate the contract value to range between RM50-60m. From the announcement, the job is expected to commence from 20 Sept 2022 till 31 December 2023 (15 months).

2) From our ground checks, we understand that most OGSE players are currently benefitting from price hikes across the board for multiple value chains in the sector – i.e. i-HUC, MCM, OSVs, Drilling rigs etc. We strongly believe that this is due to the prolonged elevated crude oil price environment where the sector’s service providers are finally benefitting from the increase in local and regional capex from oil majors.

3) Overall, we are slightly positive over this development. This would only marginally add to Dayang’s current outstanding orderbook of RM1.8bn.

Outlook. We expect Dayang to have a strong showing over the next 18 months as our recent meeting with the group’s 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 and higher OSV DCRs for Perdana Petroleum in FY22-23. Also recently, Petronas has raised its 2022 total capex guidance to RM60bn, which is usually back loaded in 4QCY22 from its annual capex cycle.

Forecast. Unchanged.

Maintain BUY, TP of RM1.26. We maintain BUY on Dayang with an unchanged SOP-derived TP of RM1.26/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 - 21 Oct 2022