The 3+2 marine services contract will help to improve DAYANG?s overall vessel utilisation. Despite so, no firm value is given for this umbrella contract, which depends on actual work instruction from PETRONAS Carigali Sdn Bhd (PCSB). All in, we maintain OUTPEROFRM call on the stock with an unchanged TP of RM1.14 pegged to 0.77x FY17 PBV as we believe DAYANG is a potential beneficiary of fresh round of contract awards given its track record in maintenance work.

3+2 marine services contract. Yesterday, DAYANG?s 98%-owned subsidiary, PERDANA (Not-Rated) announced that the company has accepted the Letter of Award from PCSB for the provision of spot charter marine vessels services on 17 March 2017. The contract has a duration of 3 years, effective from 15 March 2017 until 14 March 2020 with an extension option of 2 years exercisable by PCSB.

Four packages umbrella contract. PERDANA was awarded four packages under the Umbrella Contract to provide the following vessels; (i) anchor handling tug/supply vessel 100MT and below bollard pull, (ii) anchor handling tug/supply vessel above 100MT bollard pull, (iii) workboat, and (iv) work barge. The contract requires PERDANA to provide the vessels, crews and associated equipment for continuous 24-hour operations.

Contract value uncertain. We are positive to the contract award as it helps to improve vessel utilisation. Given that it is an umbrella contract, we suppose that Petronas had shortlisted 5-6 licensed players which qualified for technical specifications. The total value of the contract will depend on the actual number of days the vessels are on-hire based on instructions from the PCSB from time to time during the contract period.

No changes to our earnings forecast. Recall that DAYANG is targeting to improve PERDANA?s 17 vessels utilisation to an average of 70% - a breakeven level from 60% in FY16. We made no changes to our earnings forecasts as we assumed 60-65% utilisation for PERDANA?s fleets in FY17-18.

Potential beneficiaries of MCM contract. As for its bread and butter business, we believe DAYANG is well positioned to be one of the potential beneficiaries of Petronas? 5-year maintenance, construction and modification (MCM) contract (expected to be awarded by 2Q17) estimated at RM5.0-6.0b. We gather that the contract is split into 6 packages and the Sarawak?s MCM portion is the biggest pie estimated at RM1.5b. We believe DAYANG stands a good chance to win this portion being the incumbent for the Sarawak topside maintenance contract.

Maintain OUTPERFORM. DAYANG had proposed to undertake a private placement of up to 10% of the total number of issued shares. The exercise is expected to be completed by 2Q17. All in, we maintain our OUTPERFORM call with an unchanged target price of RM1.14 pegged to 0.77x FY17E PBV as we believe DAYANG is a potential beneficiary of fresh round of contract awards given its track record in maintenance work.

Risks to our call: (i) weaker-than-expected HUC/TMM work orders, and (ii) prolonged downturn in OSV market.

Source: Kenanga Research - 28 Mar 2017