News    Yesterday, Dayang Enterprise Bhd (DAYANG) announced that it had received a Hook-up, Commissioning (HUC) and Topside Major Maintenance Services contract from Petronas Carigali. 

The contract is for a primary duration of five (5) years, but no contract value was specified.

Comments    We are not surprised by the win given that we had always suspected that the company was tendering for a slice of the Petronas Carigali HUC jobs and was likely to be a strong candidate given its sterling execution track record. 

The market rumour is that the contract value could be around RM1-1.5b. Hence, assuming that this contract is worth about RM1.3b, it will bring DAYANG’s YTD order wins to RM4.0b (slightly above our 2013 total contract win assumption of RM3.7b) and its order book to RM5.2b (from RM3.9b). 

Outlook   DAYANG’S longer term prospects are strong given that around 77% of its order book (RM4b) extends to 2018. 

Any improvement in PERDANA’s (OP, TP: RM2.04) earnings will have an impact on DAYANG’s associate earnings also. 

Any margin expansion for its new projects (we have assumed a discount to its historical EBIT margins earned on its previous topside maintenance projects) will  also provide a further catalyst to DAYANG’s earnings.

Forecast   We have: (1) increased DAYANG’s contract win estimate by another RM300m; and (2) reduced its associate earnings estimates given that we had tweaked PERDANA’s net profit last week due to its lower-than-expected charter rates.

Our changes above have lifted DAYANG’s FY13-14E EPS estimates by 1.5% and 4.5% respectively.

Rating Maintain OUTPERFORM

Valuation    Our target price has been lifted to RM6.06 (from RM5.80) based on an unchanged 15x CY14 EPS of 40.4 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.

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

Source: Kenanga