1Q18 results came below expectation dragged by weaker marine charter segment with poorer rates and vessel utilisation. Hence, we slashed our FY18-19E earnings by 20- 10% and SoP-driven TP is reduced to RM0.810 from RM0.960 by trimming down valuations of both core businesses. Overall, still an OP premising on earnings recovery in FY18.

Below expectations. At only 12% of our/consensus full-year estimates, 1Q18 core net profit (CNP) of RM8.1m came below expectations due to weaker-than-expected marine charter segment. No dividend was declared as expected.

1Q18 earnings up both QoQ and YoY. 1Q18 earnings increased by 2.0x QoQ to RM8.1m after stripping off unrealised forex loss of RM29.4m. The stronger performance was largely attributable to better offshore TMS division (+1.1x; higher project margin from MCM contract) masking weaker marine charter business in which its operating losses widened by 1.1x as a result of weaker vessel utilisation. Note that its 61%-owned PERDANA (Not Rated) recorded lower vessel utilisation at 27% in 1Q18 vs. 51% in 4Q17. YoY, DAYANG managed to return to the black from RM36.6m core net loss, thanks to commendable performance from offshore TMS division (+64%; higher work orders and margins). The drag was still from the marine charter segment with operating losses widening by 55% on lower charter rates despite marginal improvement on vessel utilisation from 24% in 1Q17.

Downgrade FY18-19E earnings by 20-10%. We slashed our FY18- 19E earnings by 20-10% to RM53.2-68.5m factoring weaker contribution from its OSV segment. We still expect its vessel utilisation to pick up post monsoon season with average projection of 55-60% in FY18-19.

Maintain OUTPERFORM with lower TP of RM0.810. DAYANG was involved the Pan MCM tenders and is eyeing to win a portion of this estimated RM8.0b project. However, with the new federal government, we believe the potential re-assessment of existing tenders could lead to delay in contract award. Post earnings adjustment, we lower our SoPdriven TP to RM0.810 (implying FY18E PER of 15x and 0.8x PBV) from RM0.960 previously following our downgrade of; (i) OSV segment to 0.4x 1Q18 PBV (from 0.6x), and (ii) offshore TMS segment to 10x FY18E PER (from 11x previously) on the increased uncertainty of contracts flow timing. All in, we reiterate our OUTPERFORM call on the counter premising on earnings recovery in FY18 led by higher work orders. Risks to our call are: (i) weaker-than-expected HUC/TMM work orders, and (ii) prolonged downturn in OSV market.

Source: Kenanga Research - 25 May 2018