News

DAYANG announced that it has secured a contract to provide topside maintenance services for Kebabangan Petroleum Operating Company Sdn Bhd (KPOC).

The contract is for a period of two years commencing 16 March 2016, with an option to extend for another one year. The contract value is approximately between RM25.0m and RM42.0m.

Comments

The contract award is positive to DAYANG, marking the first contract win announcement in 2016. However, the amount is relatively small and the average value of RM33.5m for the firm contract only accounted for approximately 8% of our RM400m orderbook replenishment assumption.

Assuming a relatively conservative EBIT margin of 15% against historical margins of 20%-25% given its smaller size and possible margin compression, we estimate the contract will contribute c.RM2.5m EBIT or equivalent to 1.2% of our FY16 EBIT forecast. There is no change to our forecasts as it is deemed to be within our assumptions.

We believe there is a potential for DAYANG to secure more jobs from the client if they discover the need to provide additional maintenance services to the platform.

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.

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 the uncertainty in crude oil prices.

Forecast

No changes to our forecast.

Rating

Maintain MARKET PERFORM

Valuation

TP is maintained at RM1.43 which is pegged to CY16 10x PER.

Risks to Our Call

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

Source: Kenanga Research - 26 Apr 2016