Period

4Q15/FY15

Actual vs. Expectations

DAYANG recorded unexpected stronger core net profit (CNP) of RM46.0m in 4Q15, bringing FY15 CNP to RM116.7m. This was 27% and 15% above our and street’s forecasts, respectively.

We believe this was largely due to stronger than expected HUC recognition.

Dividends

No dividend was declared as expected.

Key Results Highlights

4Q15 core net profit leapt significantly to RM46.0m from merely RM0.9m in 3Q15 after stripping off impairment and write-down by PERDANA totalling RM64.5m, fair value gain on re-measurement of equity interest of RM26.9m and unrealised forex gain of RM7.5m. We believe the stronger performance was due to higher revenue recognition from its HUC projects backed by 15.5% growth in topline.

On YoY basis, 4Q15 core net profit also surged by 47.7% largely attributable to higher other operating income and lower tax expense despite a 7% drop in revenue due to lower utilisation and work orders carried out by oil majors. In FY15, cumulative core net profit plunged 34.6% YoY from RM178.6m in FY14 dragged by weaker work orders and lossmaking PERDANA with an average fleet utilisation of 63% last year vs. 92% a year ago.

Outlook

Order book currently stands at RM3.8b, 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 slow at this juncture.

DAYANG aims to turn around PERDANA by reducing its breakeven utilisation, vessel redeployment and other cost optimisation measures.

DAYANG is in the midst of refinancing its USDdenominated loan worth USD170m, which is slated to complete by March this year.

Timing risks are still 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

No changes to our FY16E earnings. Meanwhile, FY17 CNP of 122.8m is introduced, factoring in: (i) RM400m contract replenishment for its offshore segment, and (ii) vessel utilisation of 70%.

Rating

Maintain MARKET PERFORM

Valuation

Post changes in forecast, fair value is maintained at RM1.43 previously, pegged to a CY16 PER of 10x.

Risks

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

Source: Kenanga Research - 1 Mar 2016