DAYANG has secured a 3+2 years umbrella contract for modification works from Carigali-PTTEPI. Being an umbrella contract, DAYANG would still have to compete with another 1-2 players for work orders. Nonetheless, we are still positive on the new win, being its second win YTD with order-book currently at ~RM5b. Maintain MP with unchanged TP of RM2.75. Although anticipating a seasonally weak 4QFY19 results, we believe dips from current levels could pose as opportunistic entry.

Secured modification works umbrella contract. Dayang announced that it has been awarded an umbrella contract by CARIGALI-PTTEPI Operating Company Sdn Bhd for the provision of modification works for Block B-17 & C-19 and B-17-01. The duration of the contract is effective from 30th January 2020 for a period of three years with two years extension option. No contract value was disclosed in the announcement as the actual value would be based on work orders issued.

Positive on the smallish contract win. We are positive on the contract win, being DAYANG’s second new win YTD, showcasing the company’s competitiveness and operational capabilities. Being an umbrella contract however, we believe there would be another 1-2 players within the same umbrella of which DAYANG would still have to compete against for work orders. We guesstimate the entire umbrella value to be worth ~RM300-350m, and as such, we reckon DAYANG should be able to secure around ~RM150m worth of work orders over the entire contract period. We expect operating margins to be around the low-teens percentage range. Post-award, DAYANG’s order-book would stand at around ~RM5b, giving them ~4-5 years revenue visibility.

Maintain MARKET PERFORM, with unchanged SoP-TP of RM2.75 – implying 15x PER on FY20E EPS. No changes to our assumptions post-award, as we deem the new win to be broadly within our RM2b replenishment assumption. Moving forward, DAYANG is expected to post stronger FY20 earnings, backed by Petronas’ rising demand for MCM, although the upcoming seasonally weak 4QFY19 results could somewhat dampen sentiment. With that said however, we reiterate that any dips from current levels could still act as an opportunistic entry.

Risks to our call include: (i) complications in project execution, (ii) higher-than-expected work orders, and (iii) stronger-thanexpected margins and contract replenishment

Source: Kenanga Research - 5 Feb 2020