Period  2Q14/1H14

Actual vs. Expectation Dayang Enterprise Bhd (DAYANG)’s 2Q14 net profit of RM54.6m brought 1H14 net profit to RM89.4m. This accounted for 41.1% of our full-year FY14 estimates (RM217.4m) and 42.6% of market consensus (RM210.1m).

 Whilst we understand that 2H14 will be stronger, we gathered that some of the Pan-Malaysia Hook-up and Commissioning (HUC) projects are still sluggish contrary to earlier expectations; hence we deem the results as slightly below expectations.

Dividends  A first interim NDPS of 3.5 sen was declared this quarter; this is within our full-year NDPS forecast of 7.5 sen.

Key Results Highlights QoQ, 2Q14 core net profit was up 57.3% mainly due to higher activities in the offshore topside maintenance services division (Offshore TMS) with the existing TMS project going strong and the continual mobilisation of the long-term HUC projects that were won in May-13.

 YoY, 2Q14 core net profit was up by 54.9%, again this is 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 pushed associate earnings higher by +71.3%.

 YTD, net profit was down by 4.6% largely due to slower-than-expected mobilisation (hence creating a mismatch in timing of costs incurred and revenue gained) and lower margins (offshore TMS division saw a margin drop of 5pts). These contracts should have better normalised return once DAYANG fine-tuned the execution. As such, management has no issues given that the volume and the duration of such jobs provide ample long-term bottom-line growth.

Outlook  Management foresees better 2H14 prospects as the Shell and Carigali’s HUC contracts will gain traction.

 Order book currently stands at RM4.5b.

 It is also a beneficiary of any improvements in associate PERDANA and its 2Q14 results have proven satisfactory as well.

Change to Forecasts Given the slower-than-expected mobilisation for HUC jobs in FY14, we have fine-tuned our revenue lower by 12.5%; this leads to our net profit forecasts reduced by 10.5%.

 We maintain our FY15E forecasts for now as we believe that returns would normalise once DAYANG fine-tuned the Pan Malaysia HUC operations.

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) lowerthan- expected margins.

Source: Kenanga