Results far exceed expectations. DAYANG posted a strong set of FY18 results, with core net profit of RM164.2m far exceeding expectations, coming in more than double our forecast of RM73.7m and RM78.8m of market consensus. The positive surprise was due to stronger-than-expected contributions from its topside maintenance services and vessel utilisation. No dividends were announced, as expected.

FY18 returned to the black. FY18 bounced back from losses, helped by: (i) more than doubling of topside maintenance contributions thanks to higher value of work orders, coupled with (ii) marine charter turning profitable on the back of improved utilisation rates of 64% vs. 52% in FY17.

For the individual quarter, 4Q18 posted a record quarterly core profit of RM94.2m, recovering from losses in 4Q17, driven by: (i) ramp-up in maintenance works and lump-sum work orders during the quarter for topside maintenance, and (ii) spike in vessel utilisations to 73% vs. 51% in 4Q17. Sequentially, 4Q18 core earnings more than doubled from 3Q18, lifted by its topside maintenance segment, similarly on the back of ramp-up in maintenance works and lump-sum work orders during the quarter, offsetting the seasonally weaker vessel utilisations of 73% vs. 84% in 3Q18 due to monsoon season.

Outlook ahead. We believe forward earnings trend will definitely be better as compared to losses in the prior two years, buoyed by its current order-book of ~RM3b, providing some earnings visibility for the next 3 years. This stem from its contract wins of ~RM2b in FY18, consisting mostly of Pan-MCM jobs, coupled with its maiden overseas win in Turkmenistan. Meanwhile, its 60.5%-owned subsidiary PERDANA is expected to undergo a comprehensive corporate exercise in the next 12 months, under the purview of the Corporate Debt Restructuring Committee (CDRC) of Bank Negara Malaysia. This could include borrowings extension, disposal of assets, special placements, and/or rights issue, and hence, we opine that it may also implicate DAYANG’s shareholders.

Maintain OUTPERFORM, given its improved outlook on the back of recent contract wins and recovery in vessel utilisations. Post-results, we raised our FY19E earnings forecast by 12% after increasing our vessel utilisation and topside maintenance assumptions, while also simultaneously introducing FY20E numbers. Following this, our SoP-TP is also raised to RM0.92 from RM0.81 previously, implying PBV of 0.7x, which is still around -0.5SD below its mean of 1.1x PBV.

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 - 25 Feb 2019