DAYANG has received a contract extension until June 2021 from Sarawak Shell Berhad and Sabah Shell Petroleum Company, for the provision of topside major maintenance services. While no contract sums were disclosed, we guesstimate it to be roughly RM10-20m, somewhat immaterial against the group’s ~RM3.6b order-book. Nonetheless, given the overall underlying recovery theme, we maintain our OP call with a higher TP of RM1.35.

Contract extension from Sarawak Shell and Sabah Shell. DAYANG announced that it has received a contract extension from Sarawak Shell Berhad and Sabah Shell Petroleum Company, for the provision of topside major maintenance services. Duration of the contract is extended until June 2021. No contract value was disclosed in the announcement, as the actual value would be based on work orders issued by the clients. This is an extension to the original contract that was first awarded in August 2020 (refer to our report dated 18 August 2020) and set to lapse by end-2020.

Smallish contract value. While no contract value was disclosed, we guesstimate the value of the extension to be roughly RM10- 20m. This is a rather smallish contract and somewhat immaterial against the group’s total order-book of ~RM3.6b (i.e. <1% of order-book).

Recovery in play, but beware of monsoon. We firmly believe the upcoming 4QFY20 quarter may record sequentially weaker earnings due to the monsoon season. Nonetheless, on the bigger picture beyond the next quarter, DAYANG should be a beneficiary of a broader recovery in activities as lockdown measures gradually ease. The group’s latest outstanding order-book of ~RM3.6b is expected to provide earnings visibility until at least FY23.

Maintain OUTPERFORM, with higher TP of RM1.35, from RM1.20 previously. No changes to our FY20-21E numbers, given the smallish contract value. However, amidst an underlying recovery theme, we raised our applied valuation to 0.9x PBV, from 0.8x previously – close to its mean valuation.

Being an offshore maintenance contractor, we see DAYANG as a strong proxy of any factors that may lead to improvements in oil demand (e.g. positive news flow from Covid-19 vaccinations).

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

Source: Kenanga Research - 24 Dec 2020