News  Yesterday, Dayang Enterprise Bhd (“DAYANG”) announced that it had entered into a ship building contract with Shin Yang Shipyard Sdn Bhd for one unit of offshore accommodation workboat at a purchase price of approximately RM70m.

 The new vessel is scheduled to be delivered by 4Q14.

Comments  We are not surprised by the announcement as we understand that DAYANG was looking for additional vessels to accommodate its mega contract wins for the year (i.e., c.RM3.6b for the Pan Malaysia Hook-up and commissioning contract).

 This brings DAYANG’s vessel count to 8 vessels.

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

 Any improvement in PERDANA’s (OP, TP: RM2.40) earnings will have an impact on its associate earnings on trickle down effect.

 As we have derived our forecasted margin based on a discount to its historical EBIT margins earned on its previous topside maintenance projects, better-thanexpected margins on the new projects will provide further earnings catalyst.

Forecast  We maintain our FY13E-FY14E estimates as we believe the new vessel will be utilised for the existing backlog order, and thus already imputed into our forecasts.

Rating   Maintain OUTPERFORM

Valuation  Our target price is left unchanged at RM6.06 based on 15x CY14 EPS of 40.4 sen.

 The ascribed target PER is higher than its historical forward PER valuations as we have re-rated the stock on account of its higher-than-historical contract win in CY13.

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

Source: Kenanga