Period  3Q14/9M14

Actual vs. Expectation Dayang Enterprise Bhd (DAYANG)’s 3Q14 net profit of RM58m brought 9M14 net profits to RM147.4m. This was within our estimates (RM194.5m) and consensus’ (RM198.4m), at 75.8% and 74.1%, respectively.

Dividends  No dividend was declared this quarter.

Key Results Highlights

 QoQ, 3Q14 core net profit was up 6.2% largely on the back of higher activities in the offshore topside maintenance services division (Offshore TMS) with heightened work orders on the HUC projects that were won in May-13.

 YoY and YTD, 3Q14 and 9M14 core net profit was up by 81.5% and 17.3%, respectively, again mainly due to the new long-term HUC projects that kickstarted from 2H13 and contribution from Perdana

Petroleum (PERDANA; OP; TP:RM1.61) which pushed associate earnings higher by 68.5% and >100%, respectively.

Outlook  Order book currently stands at RM4.2b while bid book is at RM800m. We understand the bids outcome should emerge within the next 3-6 months.

 Given that DAYANG holds 28.6% stake in PERDANA, it will also benefit from any increase in earnings contributions.

Change to Forecasts We maintain our FY14-15E forecasts for now, given that earnings are within our expectations.

Rating Maintain OUTPERFORM

Valuation  In our view, the oil and gas sector has undergone a de-rating in lieu of the uninspiring crude oil prices.

 As such we are reducing our PER on the stock to 12x (from 15x previously).

 Our ascribed PER is 20% above the 10x historical -1 standard deviation level for oil and gas stocks, as we believe DAYANG deserves a premium for being a Pan Malaysia contractor which minimises the uncertainty of future contracts.

 Our PER cuts result in TP being reduced to RM3.40 (from RM4.52 previously) based on CY15 EPS.

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