DAYANG recorded one of its best ever quarters in 3QFY19, blowing away expectations, thanks to strong work orders from offshore maintenance, on top of high vessel utilisation. This trajectory means FY19 is likely to be one of its strongest ever year, despite 4QFY19 expected to be seasonally weaker, with high demand for work orders to flow well into FY20. With outlook remaining exciting, we maintain OUTPERFORM, with higher TP of RM2.35.

3QFY19 results blew expectations. DAYANG posted one of its stronger (if not the best) quarterly results in 3QFY19, with core net profit of RM96.1m (arrived after stripping-off non-recurring items e.g. gains on bargain purchase, unrealised forex etc) – bringing cumulative 9MFY19 core net profit to RM144.4m, exceeding expectations at 99% of ours and 108% of consensus full-year earnings forecasts. The better-than-expected earnings was due to strong offshore TMS work orders, as well as high utilisation of marine vessel charters. No dividends were announced, as expected.

One of DAYANG’s strongest ever quarters. The superbly strong results (cumulative 9MFY19 and 3QFY19 more than doubled YoY, while sequentially 3QFY19 jumped 80% QoQ) were driven by both core segments of (i) offshore TMS, from higher work orders performed, and (ii) marine charter, from higher vessel utilisations. In fact, vessel utilisations during the quarter surged up 91%, as compared to 79% QoQ and 84% YoY. Cumulatively, vessel utilisations averaged at 69% for 9MFY19, up from 60% YoY. Note that the period (both 3QFY19 and cumulatively 9MFY19) saw higher value of lump sum work orders, which contributed to higher margins.

Exciting outlook ahead. We expect 4QFY19 to be a robust quarter although seasonality could mean that we may naturally see some decline sequentially (recall that 4QFY18 was also a “supernormal” quarter, and hence, we believe should also not be used as a benchmark). Regardless, DAYANG seems on track to post one of its best ever full-year results in years for FY19. Going into FY20, we believe strong demand for top side maintenance work orders could translate to an even better year earnings-wise. This is on top of its current group-wide debt restructuring plan, which could see further interest savings costs as well as increased competitiveness given an optimised capital structure.

Maintain OUTPERFORM. Post-results, we raised our FY19E/FY20E earnings by 17%/15%, to account for stronger offshore TMS work orders. As such, our SoP-derived TP has also been raised to RM2.35 (from RM2.00 previously), pegged to unchanged valuations of: (i) 16x PER for its offshore TMS segment, and (ii) 0.5x PBV for its marine segment. Our TP implies a forward PER of 15x, which is still below oil and gas average of 18x. Note that our valuations have also taken into account share base dilution arising from the corporate exercises.

Overall, we continue to like DAYANG, being a prime beneficiary of increased Petronas upstream activities, giving it a very exciting earnings outlook moving forward. We are looking towards the upcoming Petronas Activity Outlook report (expected release in 1-2 months) for further assurance of jobs flow.

Risks to our call are: (i) weaker-than-expected work orders, (ii) poorer-than-expected margins, (iii) lower-than-expected vessel utilisation, and (iv) falling through of corporate exercises.

Source: Kenanga Research - 25 Nov 2019