DAYANG had secured a smallish topside maintenance contract from Sarawak Shell Berhad and Sabah Shell Petroleum Company Limited, guesstimated to be valued at <RM10m. Given the smallish contract value, this is somewhat inconsequential against the group’s ~RM4b order book, and thus expected to pose little (albeit positive) impact to the group’s FY20E earnings. Maintain MP, with TP of RM1.30.

Secures contract from Shell. DAYANG announced that it had been awarded a contract by Sarawak Shell Berhad and Sabah Shell Petroleum Company Limited for the provision of topside major maintenance services. The duration of the contract is effective 23 July 2020 until completion of work in FY20.

Smallish contract value. While no contract values were disclosed, as the actual value would be based on work orders issued, given the scope of works and contract duration, we understand this to be a very smallish contract, with a guesstimate value of <RM10m. This is somewhat inconsequential against the group’s total order book of ~RM4b, and thus expected to pose little (albeit positive) impact to the group’s FY20E earnings.

Weaker year ahead. Despite the contract win, this is still far from mitigating the overall impact of Covid-19, MCO, and lower oil and gas activity levels. DAYANG had posted a record FY19, and given the circumstances, it will be near impossible to replicate last year’s supernormal performance moving forward. Lowered capex and opex spending by oil majors could also translate to lower offshore maintenance, and hook-up and commissioning works throughout the remainder of the year. While the group’s order-book stands at an estimated ~RM4b, there is no certainty of high-value work orders to be awarded in the near term.

Maintain MARKET PERFORM and TP of RM1.30, pegged to 0.8x PBV on FY21E, which is roughly -1SD from its mean.

While the name lacks catalyst at the moment, re-rating catalysts may emerge when there is visible recovery in the oil and gas sector, prompting improvements in offshore activity levels.

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

Source: Kenanga Research - 18 Aug 2020