Period

3Q15/9M15 Actual vs. Expectation

3Q15 core net profit of RM0.9m came below our and street’s expectations, bringing its 9M15 core net profit to RM70.6m which accounted for only 50.4% and 46.0% of our and consensus full-year forecasts, respectively.

This is due to weaker-than-expected HUC worker orders and consolidation of loss-making subsidiary, PERDANA.

Dividends

No dividend was declared for the quarter as expected. Key

Results Highlights

3Q core net profit plunged 97.4% QoQ to RM0.9m from RM35.4m due to lower HUC work orders and lower utilisation as compared to last year from its PSC clients. Earnings was worsened by lossmaking PERDANA, which was an associate of DAYANG and eventually become its subsidiary in the period under review. Do take note that revenue increased 10.3% QoQ as a result of consolidation with PERDANA for a period of approximately two months.

On YoY basis, 3Q15 core net profit also plummeted by 98.4% with slower activities carried out by oil majors. Adding to the woes is the higher finance cost amounting to RM12.6m, eight times higher in 3Q14 arising from weaker home currency pressurising its USD-denominated debt. In 9M15, cumulative core net profit plunged 52.1% YoY from RM147.4m in 9M14 mainly attributable to the abovementioned reason.

Outlook

Order book currently stands at RM4.1b, expected to last until 2018.

We foresee DAYANG’s earnings to come under pressure after consolidating PERDANA within the group in the near-term 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 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 contracts partially to later years in lieu of uncertainty in crude oil prices.

Change to Forecasts

We cut our earnings forecast by 26.7%/49.8% for FY15/FY16 assuming the full consolidation of PERDANA going forward.

However, there is a possibility that DAYANG could divest some of its stake by getting new investors but still maintain control on PERDANA. .

Rating & Valuation

UNDER REVIEW pending more details on strategic direction on PERDANA.

Risks

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

Source: Kenanga Research - 30 Nov 2015