News

Yesterday, DAYANG announced that it has secured a job from Petronas Carigali for the provision of Facilities Improvement Project (FIP) for Petronas Carigali Sdn Bhd – Package A: Sarawak Operations (SKO) and Sabah Operations (SBO) Offshore.

Contract value is estimated at RM250m for a period of two years effective 8 June 2015.

The contract shall be performed on a call-out basis and includes work and services like SIMOPS, Hook-up and Commissioning and major construction work.

Comments

It is not entirely a surprise to us as we have factored in orderbook replenishment of RM500m for FY15 and the contract win accounts for 50% of our assumption.

The win is a positive to the group as it showcased its ability to secure a contract of this magnitude even during these challenging times for the industry.

Timing of revenue recognition of contract might be uneven given the call-out option stipulated.

As it is largely related to HUC works, we believe the modification job’s operating margin would be similar to the 15% level (historical HUC margin) or slightly lower given the recent pressure on margins amidst low oil prices causing operators to demand lower for pricing.

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 the challenging local OSV market with demand likely to come off as O&G activities are slower compared to last year.

Timing risk is inherent for its HUC projects, which account for a significant portion of the group’s revenue contribution as its oil majors clients seek to defer contracts 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.

Forecast

We maintain our forecasts for now.

Rating

Maintain MARKET PERFORM

Valuation

TP is maintained at RM2.50 as we pegged TP to 12x 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 - 5 Jun 2015