Dayang's FY11 results were below expectations, attributed tothe slowing in activities owing to the monsoon season, some demobilization and mobilization costs in relation to new contracts, as well as the carrying out of lower margin work during the quarter. We aredowngrading our FY12 earnings by 13%. Maintain Buy, but with a lower Fair Valueof RM2.34.
Below estimates.Dayang's FY11 results were within consensus but below our expectations, makingup 98% and 86% of the FY11 forecasts. In3QFY11, we had upgraded our FY11 forecasts on expectations of more positivesurprises coming from the delivery or performance of higher marginproducts and services but we gather thatapparently, most of the company's customers had wound down their activitiesfaster-than expected to prepare for the monsoon season. Meanwhile, we understand that it performedlower margin work orders during the quarter and was also affected by some demobilization as wellas new mobilization costs in anticipation of new contracts. These caused its4QFY11 revenue and EBIT to drop by 2.0% and 57.4% q-o-q.to RM99.1m and RM16.6m respectively. Nevertheless, YTD FY11 revenueand EBIT surged 49.7% and 31.5% to RM382.3m and RM111.8m respectively, contributed by thehigher number of brownfield servicesdelivered in FY11 as Petronas and its PSC contractors became more active inlocal O&G developments compared with the previous year.
Buying more ofPerdana Petroleum? Given that Dayang had net cash of RM136.2m as at Dec2011, we would not be surprised if it decides to increase its current equitystake of more than 11% in Perdana. However, we believe that management wouldonly do so after Perdana has rolledout its turnaround plan to ensure that there would be no erosion in earnings for Dayang once it is bought up to the associate level.Although we are unsure of the timeline, we believe Perdana would be able tocome up with a turnaround plan quickly,and we would not be surprised if Perdana becomes Dayang's associate.
Downgrading FY12earnings forecast by 13%. As FY12 will be a year during which Dayang will be bidding forprojects, we our downgrading our FY12earnings to factor in further demobilization costs of completed projectsand the mobilization costs incurred in respectof new projects.
Maintain Buy.Nevertheless, we are tweaking down our fair value for Dayang to RM2.34 (previouslyRM2.70) based on the existing PER of 13x FY12 EPS. Despite our downgrade,we still like Dayang's strong orderbook of over RM1.5bn, whichwill keep it busy over the next 2-3years. Also, the company's steady business model provides it with recurringincome and a constant cash flow.