DAYANG’s 1QFY20 results managed to turn around from losses YoY, thanks to higher offshore maintenance lump sum works coupled with stronger vessel utilisation. However, the group is guiding for a weaker outlook moving forward. We are anticipating a weak 2QFY20 on the back of MCO-led disruptions, while overall trend in capex and opex cuts from clients could also translate to less work orders for the remainder of the year. Upgrade to MP, given share price weakness, with unchanged TP of RM1.30.

1QFY20 deemed below expectations, despite strong results. Despite the strong 1QFY20 core net profit of RM13.6m (adjusted for unrealised forex losses), turning around from losses last year, we deem the set of results to be below expectations, coming in at merely 6% each of our and consensus full-year forecasts, as we see downside risks in earnings assumptions given current challenging landscape. No dividends were announced, as expected.

Turning around from losses YoY. 1QFY20 managed to post a turnaround from losses YoY, helped by: (i) higher lump-sum work orders for its offshore topside maintenance services (TMS), coupled with (ii) higher vessel utilisation of 55%, versus 36%, for its marine charter segment.

Sequentially, however, 1QFY20 core earnings slumped by over 80% QoQ, with the quarter being the seasonally weakest in the year due to the monsoon season. As a result, the quarter saw overall lower offshore TMS activities, as well as lower marine charter vessel utilisation (55% vs. 74%).

A weaker year ahead. While DAYANG had enjoyed a superb FY19, we believe it will be difficult to replicate last year’s supernormal performance moving forward. We are largely anticipating a weak 2QFY20 amidst mild operational disruptions caused by the imposed movement control order. Additionally, Petronas’ recent announcement of capex and opex reductions may also translate to lower offshore maintenance, and hook-up and commissioning works for the remainder of the year. While the group’s order-book is still at an estimated ~RM4b (call-out basis), the group had also cited that there is no certainty of high-value work orders to be issued in the near term.

Upgrade to MARKET PERFORM, with unchanged TP of RM1.30, pegged to valuation of 0.8x FY21E PBV on, which is roughly at -1SD from its mean. Our call is upgraded from UNDERPERFORM on account of the big plunge in its share price, in-line with the oil price weakness. Additionally, given the overall weaker outlook, we have also opted to conservatively slash our FY20-21E earnings by 44% each, after factoring in weaker topside maintenance work orders and vessel utilisations.

Risks to our call are: (i) stronger-than-expected work orders, (ii) higher-than-expected margins, and (iii) higher-than-expected vessel utilisation.

Source: Kenanga Research - 24 Jun 2020