1QFY22 earnings are deemed to be broadly within expectations, despite posting QoQ decline, with 1Q being a seasonally weak quarter due to the monsoon season. Nonetheless, YoY, results have staged a turnaround from losses due to revival of work orders in tandem with the economy reopening. DAYANG’s outlook is expected to gradually improve throughout the year, premised on increased demand for HUC and MCM works from Petronas. Maintain OUTPERFORM and TP of RM1.00.

1QFY22 results deemed broadly within expectations. 1QFY22 core net profit of RM9.3m (arrived after adjusting for non-core items e.g. unrealised forex, and insurance claim) is deemed to be broadly within expectations at 15% each of both our and consensus full-year estimates, given the seasonally weak 1Q amidst the monsoon. No dividends were announced, as expected.

Sequentially weaker due to monsoon, but better YoY. Sequentially, 1QFY22 saw core net profit plunging 78% QoQ, due to works being hampered by the monsoon. Vessel utilisation was lower at 25% versus 38% last quarter. However, YoY, the quarter saw a turnaround from losses mainly due to revival of work orders given the reopening of borders. Vessel utilisation also improved to 25% versus 20% last quarter.

Outlook to gradually improve. Backed by its current order-book of RM1.8b, DAYANG’s outlook is expected to gradually improve throughout the year given the revival of projects after two years of intermittent stop-starts. 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.

Maintain OUTPERFORM, with unchanged TP of RM1.00 – pegged to 0.8x PBV, broadly in-line with 0.5SD discount from the stock’s mean valuation. We also made no changes to our FY22-23E numbers post results.

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 - 20 May 2022