Period  4Q14/FY14

Actual vs. Expectation  Dayang Enterprise Bhd (DAYANG)’s 4Q14 net profit of RM31.2m brought FY14 net profit to RM178.6m. This is within our estimates (RM181.6m) at 98.3% but below consensus’ (RM198.4m) at 90.0%. This could be due to overestimation of the Pan Malaysia HUC contract in FY14.

Dividends  3.5 sen 2nd interim dividend is declared, bringing FY14 DPS to 7.0 sen, as our forecast.

Key Results Highlights  Core net profit weakened by 46.3% QoQ despite a 2.2% gain in top line in 4Q14 as a result of lower EBIT margin (4Q14: 13.9% vs. 4Q13: 27.5%) which was affected by harsh weather in two months of the quarter.

 In both 4Q14 and full year FY14, core net profit climbed 14.1% and 48.6%, respectively, YoY due to higher value of work orders for the HUC contracts secured in FY13.

Outlook  Order book currently stands at RM4.2b, expected to span until 2018 while bid book is at RM800.0m. We understand the bids’ outcome should emerge within the next 3-6 months.

 We do not foresee positive surprises from its associate, PERDANA, in 2015 in view of challenging OSV local market with demand likely to come off as O & G activities are slower compared to last year.

 Timing risk is present for its HUC projects which accounts for a significant portion of the group’s revenue contribution as its oil majors clients seek to defer the contract partially to later years in of uncertainty in crude oil prices.

Change to Forecasts  As a result of housekeeping measures, we tweaked our FY15E earnings slightly to RM194.4m from RM195.3m previously.

 We also introduced our FY16E CNP of RM232.5m while factoring in RM760.0m of HUC work orders revenue recognition with group PBT margin assumption of 25.5% and lower contribution from its associate PERDANA (UP: TP: RM1.10) as we had cut the earnings forecast for PERDANA.

Rating Downgraded to UNDERPERFORM from MARKET PERFORM as the market seems to have factored in its near-term earnings visibility. Valuation is peakish at 12.7x CY15 PER.

Valuation  TP maintained at RM2.23 pegged to unchanged CY15 PER of 10.0x, which is at the upper band of small-mid cap O & G companies’ valuation range of 7-10x in an industry downcycle.

 We value it at the upper range of peers’ valuation in lieu of its significant orderbook providing higher earnings visibility compared to peers.

Risks to Our Call  (i) Earlier than expected rebound in O & G sector (ii) higher than expected work orders for the Pan Malaysia HUC contracts, and (iii) higher-than-expected margins. 

Source: Kenanga