1H18 core earnings jumped 2.6-folds QoQ, which is within expectations, helped by higher topside maintenance work orders and better vessels utilisation. Moving forward, we believe DAYANG is poised to secure more contracts on top of YTD-win of c.RM1b. Overall, we are expecting roughly another two contracts for the remainder of the year. Reiterate OP and TP of RM0.98, with further contract wins and earnings delivery acting as catalysts.

Within expectations. 1H18 core earnings of RM29.3m (arrived after stripping-off impairments of RM7.1m and unrealised forex losses of RM4.7m) came in within expectations at 53% of our and consensus fullyear forecasts. No dividends were declared, as expected.

Overall improved results. 2Q18 core earnings of RM21.2m (arrived after stripping-off impairments of RM7.1m and unrealised forex losses of RM24.7m) gained 15% YoY, helped by improved performance from its marine charter segment. The segment narrowed core losses before taxes (LBT) to RM4.8m this quarter, from RM14.8m in 2Q17. We believe this was driven by better vessel utilisation of 70%, versus 62% in 2Q17. As for its offshore TMS segment, despite seeing improved revenue by 19% YoY due to higher work orders, the segment actually recorded lower PBT by 7%, due to lower margins (EBIT margins of 29% vs. 34% in 2Q17). Sequentially, the group’s core earnings jumped 2.6x QoQ, thanks to: (i) greatly improved marine charter segment (narrowed core LBT by 87% from RM38.6m), driven by higher vessels utilisation of 70% compared to a mere 27% in 1Q18, coupled with (ii) higher work orders from topside maintenance services, driving segmental PBT to leap by 26% QoQ. Cumulatively, 1H18 returned to the black from core losses of RM18.2m in 1H17, due to similar reasons. Offshore TMS saw its segmental PBT improved 14% YoY from higher work orders, while the marine charter segment managed to narrow its core LBT by 26%, due to higher vessels utilisation.

Expecting further contracts win for the year. YTD, DAYANG has secured three Pan-Malaysia Maintenance, Construction and Modification (PM-MCM) contracts, totalling to a guesstimated figure of c.RM1b. Moving forward, we believe DAYANG is poised for further contract wins as the slew of maintenance contracts awarded back in 2013 are due for renewals. Our current order-book replenishment assumption of RM1.5b for FY18 imputes roughly an additional two contract wins for the remainder of this year. Post-results, we made no changes to our FY18-19E earnings.

Maintain OUTPERFORM with an unchanged SoP-TP of RM0.98. Our current call is premised on DAYANG’s prospects of further contract wins coupled with continued earnings delivery to act as catalysts. Meanwhile, any positive tangible outcome from PERDANA’s debt restructuring efforts may also play out as an additional re-rating catalyst. Risks to our call are: (i) weaker-than-expected HUC/TMM work orders, and (ii) prolonged downturn in OSV market.

Source: Kenanga Research - 27 Aug 2018