Period

1Q15 Actual vs. Expectation

1Q15 results came within our expectations but below consensus with net profit of RM34.4m making up 22.6% and 17.6% of our and consensus full-year forecasts, respectively.

Dividends

No dividend was declared for the quarter as expected.

Key Results Highlights

1Q15 core net profit registered a slight decline of 1.1% YoY despite 7.2% YoY improvement in Offshore TMS revenue (T&I) driven by higher work order value done in the quarter for the recently secured Bardeg Baronia job. However, it was offset by weaker associate earnings, which plunged 54.3% YoY, PERDANA (MP; TP: RM1.55) mainly due to the monsoon season and lower vessel utilisation in the wake up weaker demand from oil operators.

Net profit rose 10.2% QoQ to RM34.4m in 1Q15 from 31.2m despite a drop in overall revenue owing to better PBT margin achieved by the Offshore TMS division due to seasonality. Typically, 4Q is the weakest quarter for the division owing to monsoon season and expenses recognition timing. Delving deeper, overall group’s PBT margin stood at 24.1% in 1Q15 in comparison to 15.3% in 4Q14 as a result of the reasons mentioned above.

Outlook

Order book currently stands at RM3.8b, expected to span until 2018.

We do not foresee positive surprises from its associate, PERDANA, in 2015 in view of challenging local OSV 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 account 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 lieu of uncertainty in crude oil prices.

The incoming MGO for PERDANA’s remaining stake post-acceptance of offer by Affin Hwang Asset Management Bhd for a 5.74% stake is a positive for DAYANG in the long run as it provides access to PERDANA’s fleet of relatively young OSV vessels to pursue higher market share of HUC contracts in the next round of Umbrella contract bidding.

Change to Forecasts

We have trimmed our earnings forecasts for FY15 and FY16 by 8.0% and 8.5%, respectively, as we accounted for the downward adjustment of its associate, PERDANA’s earnings forecasts earlier.

Rating

Maintain MARKET PERFORM

Valuation

TP is reduced to RM2.50 from RM2.72 previously post earnings adjustment. We pegged TP to 12.0x PER under MGO scenario assumption to factor in potential long-term synergies of the potential acquisition.

Risks to Our Call

(i) Slower than expected work orders for HUC contract, and (iii) lower-than-expected margins.

Source: Kenanga Research - 26 May 2015