We are positive on DAYANG’s long-awaited 5+1 MCM contract win. Although the contract value is not disclosed, we believe it could range from RM1.0b to RM1.5b but with margins lower than the previous win amidst vigorous industry cost rationalisation. While maintaining the earnings estimates, we keep our OUTPERFORM call on the stock with unchanged TP of RM1.10 (implying a FY18E PER of 12.5x) pegged to 1.1x FY18E PBV.

5+1 MCM contract. Last Friday, DAYANG announced that its whollyowned subsidiary, has been awarded a contract on 20 September 2017 from PETRONAS Carigali Sdn Bhd (PCSB) for the provision of maintenance, construction and modification (MCM) services Package A (Offshore) - Sarawak Oil. The contract will commence effective 20 September 2017 for 5 years with one-year extension option at an agreed fixed schedule of rates.

Project margins could be lower. We are positive on the contract win as the five-year maintenance contract will provide earnings visibility for its bread and butter business. While the contract value is not disclosed, we believe the total firm contract value could range from RM1.0b to RM1.5b depending on the amount of work orders received. Recall that DAYANG won the RM800m top-side maintenance services contract from Petronas in February 2011 but total revenue recognised was widened to RM1.4b due to additional work scope allocated. Given the rigorous cost optimisation over these few years, the project EBIT margins could be lower, estimated at 15-20% vs its historical margins of 20-25% before the oil prices’ plunge.

Uplifting PERDANA’s suspension… Recap that DAYANG had proposed a distribution of up to 292.2m ordinary shares or c.37.5% equity stake in PERDANA by way of dividend-in-specie to the shareholders of DAYANG. While the proposal has been approved in the EGM held on 9 August, we expect the re-listing of PERDANA upon completion of the exercise in October. Meanwhile, we believe the value of the dividend share could be lower than the last traded price of RM1.54 prior to its suspension on 30 September 2015 pending approval from Securities Commission.

…followed by private placement. Post distribution of dividend-inspecie, DAYANG’s stake in PERDANA will be reduced to 60.5% and its public shareholdings spread will be increased to 20%. Furthermore, PERDANA also announced a private placement of up to 10% of the total number of issued shares, which would lower DAYANG’s stake in PERDANA to 55%. The corporate exercises are expected to be completed by 4Q17.

Maintain OUTPERFORM. Pending confirmation of work orders from PCSB, we opt to maintain our earnings forecast as we have factored in RM1.5b order-book replenishment and earnings will only contribute meaningfully in FY18. All in, we maintain OUTPERFORM call on DAYANG with unchanged TP of RM1.10 pegged to 1.1x FY18E PBV, implying FY18E PER of 12.5x. Risks to our call: (i) weaker-than-expected HUC/TMM work orders, and (ii) prolonged downturn in OSV market.

Source: Kenanga Research - 2 Oct 2017