News     Dayang Enterprise Bhd (“Dayang”) announced that it had received the letter of award from Murphy Sarawak Oil Co. Ltd ("Murphy") for the Provision of Hook-up, Commissioning (HUC) and Topside Major Maintenance Services for 2013 to 2018.

The contract is estimated to be worth approximately RM313.6m. The duration of the contract is for a primary period of five (5) years with an extension option of one (1) year.

Comments      We are not surprised by the contract award as it has been widely anticipated by the market.

This is Dayang’s first contract win for 2013 and we expect more in the coming months. These will understandably be from Shell and/or Petronas Carigali, which are expected to be larger in value than the current Murphy project.

We estimate that the Murphy contract will push up Dayang’s order book to RM1.48b (from RM1.17b).

Outlook     Dayang is a strong candidate for the upcoming Pan Malaysia Hook-up and Commissioning (HUC) RM8-10b project. It is one of the main frontrunners given its sterling historical execution track record.

We are looking at FY13-14 earnings growth of 38.1-26.4% as Dayang is expected to benefit from the large Pan-Malaysia HUC contract.

DAYANG currently trades at a forward CY14 PER of 11.5x on the back of our estimated CY14 net profit. While its price valuation has surpassed its 5-year forward average PER of 8.75x and is reaching the historical high of 13.1x, which theoretically suggests peak valuations. We believe that a rerating will still be on the cards assuming it achieves RM3.0b in contract wins, which could increase its order book by c.3x.

Forecast      As we have already assumed RM3b in HUC contract wins for Dayang for 2013, we are maintaining ourearnings forecasts at this juncture.

Rating      Maintain OUTPERFORM

Valuation     Maintaining our RM4.86 target price based on 15x CY14 EPS of 32.4 sen. The ascribed target PER is higher than its historical forward PER valuations due to a potential re-rating of the stock, which is expected to post higher-than-historical contract wins.

Risks      1) Downturn in the oil & gas sector that could result in delays in contract rollouts; 2) delay in the Pan-Malaysia HUC project, which will reduce potential earnings being recognised in the year and 3) lower than expected margins, which will also affect its earnings growth.

Source: Kenanga