Period     1Q13/3M13

Actual vs. Expectations   DAYANG’s estimated 1Q13 core net profit of RM25.4m was broadly in line with both ours and the consensus expectations, accounting for 16.9% and 20.6% of ours (RM151.2m) and the market (RM143.0m) forecasts respectively.

We have excluded the extraordinary gain of RM32.8m from the reported 1Q13 earnings of RM58.4m as this was attributable to DAYANG’s re-measurement of its investment in  Perdana Petroleum Bhd (PERDANA; OP, TP: RM2.18) from an available-for-sale investment to an equity-accounted associate.

We consider the earnings as within expectations as 1Q is typically seasonally weaker. We expect to see earnings strengthen from 2Q13 onwards while earnings at the tail-end of 2013 could be bolstered by the new Pan Malaysia contracts which DAYANG had just won.

Dividends    No dividend was declared as expected.

Key Results Highlights     QoQ, the 1Q13 net profit grew by a whopping 87.6% from RM6.8m in 4Q12 on the back of expanded margins from both the offshore topside maintenance services (TMS) and marine charter divisions. We suspect the TMS division was buoyed by higher activities for its topside maintenance unit and from a specific HUC contract; while the marine division was bolstered by a higher vessel utilisation in the current quarter (in 4QFY12, there was purportedly one vessel not being utilised). 

YoY, 1Q13 was up 62.8% from RM15.7m in 1Q12 due to the pick-up in its TMS activities for its main contracts (i.e. PCSB and Shell/Sarawak projects). We understand from management that the TMS works started relatively earlier this year, leading to the stronger earnings. 

Outlook    We understand that DAYANG is still bidding for more HUC contracts and we believe they stand a high chance of securing further wins given its sterling historical execution track record. 

We expect another RM700m on the cards within the current year which could boost total YTD wins to RM3.7b.

Change to Forecasts   As the earnings were within expectations, we are maintaining our FY13-14E net profit projections.

Rating  Maintain OUTPERFORM

Valuation     Our target price of RM5.80 is maintained based on 15x delays in contract rollouts; 2) a 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.

Risks    1) A downturn in the oil & gas sector that could result in CY14 EPS of 38.6 sen. 

The ascribed target PER is higher than its historical forward PER valuations due to a re-rating of the stock on its higher-than-historical contract wins. 

Source: Kenanga