DAYANG has received a PM-MCM contract from Mubadala which mainly operates the newly developed Block SK320. While we are positive on the contract win, we guesstimate the contract value to be rather smallish. Meanwhile, the upcoming 4QFY20 may post sequentially weaker results, given the monsoon season, while Petronas Activity Outlook had also suggested flattish activity levels in 2021, from 2020. Downgrade to MP and lower TP to RM1.20. Stock has already chalked returns of 14% since our OP call in Nov 2020.

PM-MCM contract from Mubadala. DAYANG announced that it was awarded a contract by Mubadala Petroleum for the provision of Pan Malaysia Maintenance, Construction and Modification (PM- MCM). The duration is effective from 9 Dec 2020, expiring 16 July 2023, with an option to extend one year.

Smallish contract value. While no contract values were disclosed in the announcement, as the actual contract values will be dependent on work orders issued by the client, we guesstimate the total value of the contract to be rather smallish at roughly <RM20m. In context, this is <1% of the group’s order- book of ~RM3.5b. In Malaysia, Mubadala operates the Block SK320 development, offshore Sarawak, which is its first development domestically. This block is a relatively new development, with FID achieved in 2018 and first gas expected only in 3QCY21. As such, we do not expect the platform to require any major maintenance activities in the near future. Nonetheless, we are still positive on the contract win, showcasing DAYANG’s capabilities in securing new clientele.

Monsoon quarter ahead. We firmly believe the upcoming 4QFY20 results may post sequentially weaker earnings given the monsoon season. Going into FY21, Petronas in their latest Activity Outlook had guided flattish demand for offshore maintenance, and hook-up and commissioning in 2021, versus 2020 levels. This will likely impact contractors operating in this space, such as DAYANG.

Downgrade to MARKET PERFORM, lowered TP of RM1.20. Since our upgraded OUTPERFORM call in Nov 2020, the stock had already managed returns of +14%. As such, we feel the share to be fairly valued at the moment, especially considering the flattish activity outlook as guided by Petronas. We trimmed our FY21E earnings by 11% after lowering our work order recognition assumptions. Our TP is also lowered to RM1.20, from RM1.35 previously, as we lowered our ascribed valuations from 0.9x PBV to 0.8x PBV – roughly at -0.5SD from mean levels.

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

Source: Kenanga Research - 15 Jan 2021