1HFY21 core net loss missed expectations amidst weaker activity levels due to the ongoing Covid-19 pandemic. While we are expecting DAYANG to continue its recovery trend in the upcoming quarters; overall, we believe FY21 could turn out to be a weaker year than FY20, as the year has been hugely plagued by the group’s inability to fulfil its work orders given the movement restrictions. Nonetheless, as borders gradually reopen, we believe the group has now passed its inflection point, with FY22 hopefully a year of recovery. Maintain OP, with lower TP of RM1.20.

Below expectations. 1HFY21 core net loss of RM28.5m (arrived after adjusting for unrealised forex and impairments) came in below expectations against our full-year profit forecast of RM87.6m and consensus of RM82.5m, mainly due to weaker-than-expected contribution from offshore topside maintenance services (TMS) amidst poorer activity levels coupled with higher operating opex due to the Covid-19 pandemic. No dividends were announced, as expected.

Sequential recovery. Against last quarter of 1QFY21, DAYANG managed to turn around QoQ in 2QFY21 to a core profit of RM5.9m, from core loss of RM34.5m. This was largely driven by better vessel utilisation for its marine charter at 51% from 20%, as last quarter was affected by the monsoon season. However, this was partially offset by weaker offshore TMS profit, despite the recovery in revenue, due to higher opex arising from Covid-19 during the quarter. Cumulatively, 1HFY21 plunged into losses, from core net profit of RM12m in 1HFY20, dragged by (i) weaker offshore TMS given lower activity levels coupled with increased opex due to the Covid-19 pandemic, and (ii) weaker marine charter vessel utilisation of 36% versus 53% last year.

Slow and gradual recovery. While we are expecting DAYANG to continue a sequential recovery in the upcoming quarter, we believe overall, FY21 profit may turn out weaker than FY20. The year was hugely plagued by the group’s hindered ability to fulfil its work orders given the stricter movement restrictions. Nonetheless, as borders gradually reopen, we are hopeful for FY22 to be a year of recovery – backed by its remaining order-book of RM2.3b.

Maintain OUTPERFORM, albeit with a lowered TP of RM1.20 (from RM1.80 previously). Post-results, our FY21E/FY22E earnings are slashed by 43%/47% to account for the weaker offshore TMS. Amidst the significant cut in earnings, our ascribed valuations is also lowered to 0.8x FY22E PBV – roughly -0.5SD below its mean (from 1.0x PBV at close to mean).

Our OUTPERFORM call is premised on a trading recovery play, revolving around the economic reopening theme amidst the winding down of movement restrictions.

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

Source: Kenanga Research - 21 Sep 2021