We are positive on DAYANG securing two packages of iHUC, guesstimated to be worth ~RM2b in total. Moving forward, we expect a stronger FY20, premised on higher MCM demand from Petronas. However, we are tactically downgrading it to MP with SoP-TP of RM2.75, given a seasonally weaker 4QFY19 and potential lack of further contract awards posing as overhangs. Nonetheless, any pullback from here could act as opportunistic entry points.

Secured two packages of i-HUC. DAYANG announced that it has been awarded two contracts for the provision of integrated hook-up and commissioning (i-HUC) services for Petronas Carigali Sdn Bhd – namely, Package B (SBA) and Package D (SKO). The duration of the contracts are for four years, effective 1 Jan 2020 and shall expire on 31 Dec 2023. While no contract values were included in the original announcement, as actual values would be dependent on work orders received, we guesstimate contract values to be roughly ~RM1b per package, thereby summing up to ~RM2b for the two contracts.

Positive on the new win. We are positive on DAYANG managing to win not just one, but two packages from the much anticipated i-HUC tenders, highlighting the company’s competiveness and job delivery capabilities. The contracts are DAYANG’s first wins for the year, bringing its order-book to a guesstimated ~RM5b (similarly work order dependent). In fact, the contract awards follow up on CARIMIN’s (NOT RATED) recent iHUC win, where the company had announced securing Package C (SKG) back in end-Dec 2019. We expect these contracts to fetch roughly mid-teens operating margins.

Stronger FY20 expected. Moving forward, we are expecting a stronger FY20 earnings-wise, premised on higher MCM manhours demand from Petronas as guided in its latest Activity Outlook. However, upcoming 4QFY19 is expected to be a seasonally weaker quarter (recall that 4QFY18 was also a “supernormal” quarter, and hence, is not a good comparative benchmark). Meanwhile, with the i-HUC contracts finally awarded, we are not expecting any further contract wins for DAYANG for the time being. Post-contracts award, we raised our FY20E earnings forecasts by 16%, after imputing a higher contract replenishment of RM2b, from RM1b previously.

Downgrade to MARKET PERFORM, albeit with a higher SoP-TP of RM2.75 (from previously RM2.35) upon earnings upgrade, implying PER of 15x on FY20E. Nonetheless, we tactically downgrade our call, given the strong share prices of late, coupled with a weaker 4QFY19 and a potential lack of contract awards for the time being acting as overhangs. However, any pullback from current levels may pose as an opportunistic entry.

Risks to our call include: (i) unexpected contract awards, and (ii) higher-than-expected work orders.

Source: Kenanga Research - 14 Jan 2020