9M18 results beat expectations, driven by higher vessel utilisations and topside maintenance work orders. Meanwhile, DAYANG also announced bagging a maintenance contract in Turkmenistan – its first venture overseas, bringing YTD wins to c.RM1.5b and order-book to c.RM3.4b. Moving forward, expect a corporate exercise with PERDANA in the next 18 months or so, under the purview of CDRC. Maintain OUTPERFORM with TP of RM0.83.

Exceeded expectations. 9M18 core net profit of RM69.6m (arrived after stripping off impairment of RM12.9m and unrealised forex gains of RM9.6m) came in beyond expectations against our/consensus full-year forecasts of RM55.5m/RM58.2m, due to better-than-expected performance from its marine charter segment. No dividends were declared, as expected.

Overall better results. 9M18 returned to the black from core loss of RM8.8m in 9M17, helped by (i) narrowed losses in its marine charter segment as vessel utilisation rates improved to 61% from 53%, coupled with (ii) higher topside maintenance work orders. For the individual quarter of 3Q18, core profit jumped 3.7x YoY to RM40.2, thanks to: (i) better performance in marine charter as utilisations improved to 84% from 70%, and (ii) higher topside maintenance work orders, further amplified by more favourable margin mix jobs as segmental margins improved by 6 ppt. Sequentially, core profit almost doubled, similarly driven by: (i) improved marine charter utilisation to 84% from 70%, and (ii) higher topside maintenance work orders.

New maintenance job. On a separate Bursa filing, DAYANG also announced being awarded a subcontract by Gujurly Inzener for the Provision of Facilities Maintenance Support in Turkmenistan, which is operated by Petronas Carigali. The duration is for three years effective Jan-2019, extendable by one year. No contract value was disclosed, as it will be dependent of work orders received, but we estimate the value at around RM400m. We are positive on the award as it represents DAYANG’s first venture overseas, highlighting its job execution competency as well as its competitiveness. This brings YTD wins to c.RM1.5b, and order-book to c.RM3.4b. Post-result and award, we revised our FY18-19E earnings upwards by 33-21% after: (i) raising our order-book replenishment assumption to RM2.3b, from RM1.5b previously, while (ii) narrowing our loss assumption for its marine charters.

Maintain OUTPERFORM. While DAYANG is positioned to benefit from the topside maintenance space on the back of an increasing work orders trend following continued maintenance deferments in the past few years, we see some possible overhang from its 60.5%-owned subsidiary PERDANA. Currently sitting at net gearing of 1.3x, PERDANA had indicated a possible debt restructuring or corporate exercises in the next 18 months or so, under the purview of the Corporate Debt Restructuring Committee (CDRC) by Bank Negara Malaysia, in which we opine may implicate DAYANG. As such, we opt to conservatively lower our valuations, arriving at a lowered SoP-TP of RM0.83 (from RM0.98 previously), after trimming our offshore TMS ascribed PER to 9x (from 10x previously), with our TP implying 0.8x forward PBV – roughly -1S.D. from its average. Nonetheless, we still retain our OUTPERFORM call, underpinned by: (i) increasing topside maintenance work orders and further new contract wins, and (ii) gradual improvements in marine charter utilisation rates.

Risks to our call are: (i) lower-than-expected maintenance work orders, (ii) slower-than-expected contract replenishment rate, (iii) lower-than- expected vessel utilisations, and (ii) massive corporate exercise.

Source: Kenanga Research - 26 Nov 2018