INVESTMENT MERIT

- Eyeing the Norwegian subsea sector. The company is looking to seal a long-term charter contract (expected to be for a firm period of c.100-130 days p.a.)  in Norway soon, of which they will engaging  a state-of-the-art offshore subsea construction vessel; Siem Daya 1 (from Siem Offshore) on third-party charter. Should DAYA win this contract: (i) there will higher percentage of upstream oil and gas ventures in it order backlog, (ii) it is another source of recurrent earnings and (iii) will strengthen DAYA’s reputation in the global market as it is rare that a Malaysian company is able to secure contracts in a relatively competitive and mature market. This will not be DAYA’s first upstream oil and gas foray, as there is a RM180.0m contract, out of its current order book of c.RM1.2b, from Sapura Kencana Petroleum (SKPETRO; OP; TP:RM4.72) for cabling and spooling for the Tapis EOR project. This project is estimated to be completed in FY13.

- Hedging its upstream bets via Risk Service Contract and SPAC involvements.  DAYA has tied up with Hydra Energy (a small international E&P player). It is also looking to be one of the early investors of an upcoming Special Purpose Acquisition Company (SPAC) called REACH. We understand that the involvement in both such ventures means it gets further inroads to the  exploration and production (E&P) segment, that is pretty lucrative and will enhance DAYA’s technical knowledge of the sector. Such ventures could also eventually lead to spin-off work for its offshore businesses. 

- Net profit continues growing in the next two years. Assuming DAYA successfully lands the Norwegian contract and around RM130.0m of other oil and gas contracts per  annum, we estimate FY13-14 net profit to be RM33.8m and RM38.9m respectively. 

- More value for now. We like DAYA for its ambitious upstream O&G aspirations and believe a Norway win will place the stock firmly on investors’ radar. Ascribing a target PER of 12x (similar to small-cap stocks like Coastal Contract and Pantech), we value DAYA at RM0.38.  This implies an upside of c.10% from current share price making the stock a Trading Buy for now.

SWOT ANALYSIS

- Strength:  (i) Asset-light business model implies lower balance sheet risk; and (ii) Stable existing ventures imply recurrent baseline earnings.

- Weaknesses: Short track record in upstream oil and gas segment could lead to difficulties in securing contracts. 

- Opportunities: RSC and SPAC provide potential prospects.

- Threats: Lower-than-expected vessel utilisation and contract replenishment. 

TECHNICALS

- Resistance: RM0.350 (R1), RM0.370 (R2), RM0.400 (R3)

- Support: RM0.310 (S1), RM0.280 (S2), RM0.265 (S3)

- Views: Bullish in the S-T & M-T

- Comments: DAYA’s technical picture looks bullish after the share price broken above recent high @0.335 that marks a resumption of previous uptrend. Should the RM0.350 resistance being taken out as well, we believe that could eventually make its way up towards RM0.370 and RM0.400 soon.

BUSINESS OVERVIEW

DAYA is a Malaysian company with diversied offerings such as ; (i) downstream oil and gas services, (ii) construction, office maintenance and recycling services; and (iii) manufacturing of advanced materials for the power cables and wires industry and the trading of related polymer compounds. It is looking to going further upstream in the oil and gas segment which offers compelling margins and better earnings prospects.

BUSINESS SEGMENTS

- Oil and gas.  The segment is involved in trading and distribution of specialty chemicals and catalysts, provision of heavy machineries and related manpower services, maintenance services for air-conditioning and ventilation system, onshore crane services, and automatic welding services for offshore pipeline installation to the oil and gas industry.

- Technical services.  The segment performs services in the construction, office maintenance and recycling services.

- Polymer.  The segment is involved in manufacturing of advanced materials for the power cables and wires industry and the trading of related polymer compounds.

Source: Kenanga