INVESTMENT MERIT

- 2nd contract win a pleasant surprise. In our last piece, we had initially expected DAYA to secure only one long-term contract in the near-term and were proven so when in Aug-13, it announced a 7-year bare-boat charter contract win from Technip, with a firm 100-175 day requirements. However, we were surprised by another contract win from Technip; for a 3-year bare-boat charter contract with a firm 100-176 day charter in Sep-13. While both these contracts do not entail full-utilisation (~360days) of the vessels (the two contracts are linked to two vessels from Siem Offshore), it is nonetheless a signal that DAYA has paired up with a reputable partner (Siem Offshore) and has been successful in breaking through into a market that is considered to be relatively matured and competitive.

- Aspire to deliver and build track record. DAYA is fully aware that its project execution for these two maiden contracts has to be flawless in order to build its track record in the upstream business. As such, we understand that management is busy securing additional projects to bring its utilisation rate up to 85-90% (from the 27-50% currently implied by the two Technip projects above). We believe this should not be an issue given the speedy take-up rate of these vessels by Technip (Siem Daya 1 was only delivered in 4QCY13 and Siem Daya 2 will only be delivered in 1QCY14).

- Potential purchase of Siem Daya 2? DAYA has stated its intention to purchase a 51% stake in the second vessel that it is currently chartering on bareboat from Siem Offshore with the intention to internalise some costs and assume ownership. For now, management is assessing its financing options.

- Still see value in stock. Post tweaking our FY14 EPS by 3.7% to RM40.7m (from RM38.4m) to account for better utilisation of the two vessels, we note that the stock still trades attractively at only 9.8x CY14 PER, a discount to bareboat charterers like Perisai Petroleum (MP; RM1.42) that trades at 12.9x CY14 PER. We firmly believe that investor interest traction will improve as DAYA proves their execution capabilities. We now value the stock at RM0.40 (from RM0.38 previously) on the back of unchanged target PER of 12x (similar to small-cap stocks like Coastal Contract and Pantech). This implies an upside of c.23% 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 more contracts.

- Opportunities: RSC and SPAC provide potential prospects.

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

TECHNICALS

- Resistance: RM0.330 (R1), RM0.365 (R2), RM0.400 (R3)

- Support: RM0.315 (S1), RM0.300 (S2), RM0.280 (S3)

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

Comments: DAYA’s technical picture looks positive as the share price edged up towards the Andrew’s pitchfork uptrend median line (RM0.335) to mark a resumption of the previous up-cycle. Should the crucial RM0.365 resistance is taken out as well, we believe that could clear the way up towards RM0.400 soon, based on objective measurement.

BUSINESS OVERVIEW

DAYA is a Malaysian company with diversified 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