DAYANG secured two PM-MCM contracts from KPOC and Repsol yesterday. While no contract value was mentioned, we guesstimate a figure of RM600-800m for the two contracts. We are positive as YTD wins of c.RM1b exceeds our FY18 replenishment target of RM800m. Hence, we raise our FY18-19E earnings by 4-14% after increasing our FY18E replenishment target to RM1.5b. Reiterate OP with TP of RM0.98 with earnings delivery and further wins as catalysts.

Award of two PM-MCM contracts. DAYANG has secured two Pan Malaysia maintenance, construction and modification (PM-MCM) contracts, from (i) Kebabangan Petroleum Operating Company Sdn Bhd, and (ii) Repsol Oil & Gas Malaysia Limited. Both are five-year contracts (until 2023), with an option to extend an additional year.

Positive on the contract wins. While no firm contract value was mentioned as the actual value would be dependent on work orders being issued, we guesstimate both contracts to be roughly worth RM600-800m in value. Overall, we are positive on the contract wins as (i) they are secured from new clients whom DAYANG had previously not provided PM-MCM services to, thus highlighting its competitiveness within the space, while also (ii) providing added jobs flow and earnings visibility. YTD, DAYANG has secured a guesstimated contract value of c.RM1b, thus exceeding our previous FY18 order-book replenishment assumption of RM800m while adding an additional c.50% to DAYANG’s latest outstanding order-book of around RM1.9b.

Impact on earnings. Post-contracts award, we raised our FY18 order- book replenishment assumption to RM1.5b (from previously RM800m), thus resulting in a 4-14% increment in our FY18-19E earnings. Given that the current landscape is more geared towards costs optimisation, we believe EBIT margins would mostly be in the range of 10-20%, and no longer similar to historical EBIT margins of 20-25% in 2013. Moving forward, we believe DAYANG is poised for further contract wins as the slew of maintenance contracts awarded back in 2013 are due for renewing. Our current order-book replenishment assumption imputes roughly an additional two maintenance contracts win for the rest of the year.

Reiterate OUTPERFORM. Post-earnings upgrade, our SoP-TP is raised to RM0.98 (from RM0.81 previously) as we roll forward our valuation base year to FY19E. As such, we are reiterating our OUTPERFORM call, with rerating catalysts stemming from further contracts win coupled with earnings delivery.

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

Source: Kenanga Research - 21 Aug 2018