Period  1Q14

Actual vs. Expectations Dayang Enterprise Bhd (DAYANG)’s 1Q14 core net profit of RM23.3m accounted for 13.7% of our fullyear FY14 estimates (RM217.4m) and 12.9% of market consensus (RM230.6m).

 However, we deem the results as within expectations given that: (i) 1Q is a seasonally weaker quarter for all offshore players, including DAYANG, and (ii) it is still in the midst of mobilising vessels for both the Shell and Petronas Carigali Pan-Malaysia Hook-up and Commissioning (HUC) contracts.

Dividends  No dividend was declared in 1Q14.

Key Results Highlights QoQ, 1Q14 core net profit was up 8.8% despite a fall in revenue (-7.8%, attributable to lower vessel utilisation and work orders received in the quarter) mainly due to better EBIT margins across divisions on account of mobilisation of the long-term HUC projects.

 YoY, 1Q14 core net profit was up by 16.1%, again mainly due to the new long-term HUC projects that kick-started from 2H13 and contribution from its associate stake in Perdana Petroleum (PERDANA; OP; TP:RM2.47) which grew >100%. Overall, such factors helped to mitigate the margin erosion in the Offshore TMS division (-12.5pts) as DAYANG is still fine-tuning operations with Shell. Such margin erosion has been guided for by management who sees no issues given that the volume and the duration of such jobs provide ample bottom-line growth.

Outlook  Management foresees better 2H14 prospects as the Shell and Carigali’s HUC contracts will be in fullswing by then.

 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) which 1Q14 results have proven satisfactory as well.

Change to Forecasts Maintain FY14-15E forecasts for now, pending earnings pick-up in 2H.

Rating Maintain OUTPERFORM

Valuation  We maintain our target price of RM4.82 based on unchanged target PER of 16x on FY15 EPS.

 Our PER is at a 0.5x premium to the PER ascribed to PERDANA as we believe DAYANG deserves a premium for 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