Period  4Q13/FY13

Actual vs. Expectations Dayang Enterprise Bhd (DAYANG)’s 4Q13 core net profit of RM23.3m brought the FY13 core net profit to RM120.2m. This is slightly below our estimate (RM131.0m) and market consensus (RM138.0m), at only 91.7% and 87.1% fulfillment rates, respectively.

 We believe the variance to our forecast is largely due to the mobilisation costs incurred in the execution of the Pan-Malaysia HUC contracts that has resulted in lower-than-expected margins in 4Q13.

 Our FY13 core net profit estimate excluded a one-off revaluation gain of RM32.7m booked in 1Q13, and an impairment loss on property, plant and equipment of RM4m that was booked in 4Q13.

Dividends  A 5.0 sen NDPS was declared, bringing the total FY13 NDPS to 10.0 sen which is slightly above our forecasts of 9.8 sen.

Key Results Highlights QoQ, 4Q13 core net profit fell by 14.5% to RM27.3m from RM32.0m in 3Q13 largely due to lower margins from the offshore TMS division arising from the mobilisation costs incurred in the preparation for the upcoming Pan-Malaysia HUC contract.

 YoY, 4Q13 core net profit was up by >100.0% to RM27.3m from RM12.8m in 4Q12 mainly due to higher value of work orders received and performed for the hook-up and commissioning contracts.

 YTD, revenue rose 40.4% to RM563.4m mainly due to: (i) higher fleet utilisation rate; (ii) higher revenue from the new hook-up and commissioning contracts, and (iii) higher revenue from the topside maintenance services contracts. However, core net profit only grew by 18.7% to RM120.2m due to lower margin contribution as mentioned above.

Outlook  DAYANG’S longer-term prospects are strong given that c.77% of its RM4b orderbook extends until 2018.

 It is also a beneficiary of any improvements in associate PERDANA (OP; TP: RM2.47) earnings.

 DAYANG currently has 6 workboats and 2 supply boats. It is awaiting the delivery of another workboat by 2014. There could be new income or cost savings assuming utilization for internal projects.

Change to Forecasts Given the lower margins and potentially lower-than-expected mobilisation from some of the Pan-Malaysian HUC players, we have cut our FY14 net profit forecasts by 3.6%. This assumes only around RM740m of Pan-Malaysian HUC work (versus RM800m previously).

 We also introduce our FY15 net profit forecast of RM248.6m; which features a 20.2% net profit growth on the back: (i) higher Pan Malaysia HUC revenue of RM800m and (ii) margin expansions (operating margin of 24% versus 22% in 2014) for the Pan Malaysia HUC project once DAYANG familiarises itself with this new contract.

Rating Maintain OUTPERFORM

Valuation  We raise our target price to RM4.82 (from RM4.10) as we rollforward our valuation base to FY15 and upgrade our target PER to 16x (from 15x previously).

 Our PER is at a 0.5x premium to the PER ascribed to PERDANA as we believe DAYANG deserves a premium from being a turnkey hook-up commissioning player with Petronas.

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

Source: Kenanga