Despite the reported deep losses, DAYANG’s FY21 core earnings actually managed to beat expectations – thanks to the strong 4QFY21 from better job margin mix. Going forward, we are expecting its outlook to gradually improve, premised on increasing demands for HUC and MCM works from Petronas in the next 3 years. With the prospects of recovery and high oil prices, the stock’s risk-to-reward ratio seems favourable at this juncture. Upgrade to OP with TP of RM1.00.

FY21 results above expectations. Despite the reported deep losses, FY21 actually came in with a core net profit of RM43.8m (arrived after adjusting for impairments totalling RM359.2m, and unrealised forex loss of RM3.5m) – drastically beating expectations against our earnings forecasts of RM0.9m and consensus of RM9.1m. The huge disparity was largely due to: (i) unexpectedly strong 4QFY21, helped by better- than-expected jobs margin mix, and (ii) it bucking the trend of typically weaker monsoon season. No dividends were announced, as expected.

All around stronger quarter. Cumulatively, FY21 saw core earnings declined 27% YoY – dragged by slower work orders for its offshore maintenance earlier the year. Vessel utilisation was also lower at 44% vs. 53% last year. However, 4QFY21 posted strong core profit of RM42.7m – more than doubled, both on a YoY and QoQ basis. Despite the monsoon season, the group enjoyed better job mix during the quarter. This was partially offset by weaker vessel utilisation of 38% (vs. 66% in 3QFY21 and 44% in 4QFY20).

Expecting outlook to gradually improve. After the massive impairments and kitchen sinking in 4QFY21, we are expecting DAYANG to see a gradual improvement in its work order outlook, backed by its order-book of RM1.9b. We have highlighted DAYANG to be one of the key beneficiaries of Petronas’ latest activity outlook for 2022-2024, which guided increased demand for offshore maintenance, construction and modification (MCM), and hook-up and commissioning (HUC) works. Nonetheless, as the monsoon season continues into 1QFY22, we would also highlight the possibility of weaker sequential numbers in the upcoming quarter.

Upgrade to OUTPERFORM (from MARKET PERFORM previously), with an unchanged TP of RM1.00 – pegged at 0.8x PBV, broadly in-line with 0.5SD discount from the stock’s mean valuation. Post results, we raised our FY22E earnings by 35%, while introducing new FY23E numbers.

With the prospect of the stock’s improving outlook and high oil prices, we believe the stock’s current risk-to-reward ratio seems attractive at this juncture.

Risks to our call are: (i) job execution, (ii) weaker-than-expected work orders, (iii) slower-than-expected vessel utilisation.

Source: Kenanga Research - 23 Feb 2022