Following disappointing 9M17 results, we expect DAYANG to record RM13.8m losses in FY17 due to weaker offshore TMS earnings and higher tax expense. That said, earnings recovery in FY18E is still expected with stronger work orders from MCM contract. All in, post distribution of dividend-in-specie and earnings cut, we maintain our OUTPERFORM call with lower SoP-driven TP of RM0.73 (implying 11.8x FY18E PER and 0.7x PBV).

Below expectations. DAYANG recorded core net loss of RM7.3m in 9M17, falling below our and street’s FY17 net profit forecasts of RM14.8m and RM30.4m, respectively. We believe this was largely due to weaker-than-expected contribution from offshore TMS segment and higher-than-expected tax expense. No dividend was declared as expected.

3Q17 earnings down both QoQ and YoY. 3Q17 earnings dropped 43% QoQ to RM10.4m after stripping off unrealised forex loss of RM8.2m and RM1.4m allowance for impairment loss on receivables. The poorer performance was largely attributable to a 38% decline in segmental contribution from offshore TMS division resulting from the absence of Petronas’ TMS job, which was completed in 2Q17. The weaker offshore TMS business offset the improvement from marine charter business, which was led by higher vessel utilisation of 70% in 3Q17 vs. 63% in 2Q17.

YoY, 3Q17 bottom-line also fell by 44% despite a 5% improvement in top-line no thanks to weaker earnings from offshore TMS segment (- 14%) due to the reason mentioned above. Cumulatively, its core net loss narrowed by 43% to RM7.3m from RM12.9m in 9M17, underpinned by stronger offshore TMS segment in the 1H17 (+48%) as well as narrowing losses from marine charter business. The improvement was helped by tighter cost control despite lower charter rates offered to clients and weakening vessel utilisation to 53% from 57% in 9M16.

Relisting of PERDANA in Dec. Post distribution of dividend-in-specie, DAYANG’s stake in PERDANA will be reduced to 60.5% and its public shareholdings spread will be increased to 20%. Resumption of trading of PERDANA shares is targeted in early December this year. Subsequently, PERDANA is looking to complete its proposed private placement of up to 10% of the total number of issued shares, which would lower DAYANG’s stake in PERDANA to 55%.

Slashed FY17-18E earnings. Following poorer results, we anticipate DAYANG to record RM13.8m losses in FY17 from a profit estimate of RM14.8m previously after factoring: (i) higher income tax, and (ii) lower contribution from offshore segment. In view of higher breakeven utilisation due to sluggish charter rates and limited cost savings from current level, we slash FY18E earnings by 29% to RM59.8m imputing higher operating cost.

Maintain OUTPERFORM. Following the distribution of PERDANA shares via dividend-in-specie on 14 Nov and re-listing of PERDANA tentatively by early December, we are switching our valuation method to Sum-of-Parts from Price-to-Book Value to reflect better valuation from the two main business components. With that, our TP is adjusted to RM0.73 (implying 11.8x FY18E PER and 0.7x PBV) from RM1.10 previously ascribing: (i) 10x PER to its offshore TMS segment, and (ii) 0.4x PBV to its 55% owned PERDANA. All in, we reiterate our OUTPERFORM call on the counter premising on earnings recovery in FY18 given its track record within the space of maintenance work, although the possibility of staying in the red in FY17 could negatively affect near-term share price performance. Risks to our call: (i) weakerthan-expected HUC/TMM work orders, and (ii) prolonged downturn in OSV market.

Source: Kenanga Research - 22 Nov 2017