1HFY22 results surpassed expectations driven by stronger profit recognition from offshore topside maintenance services (TMS) on the back of higher number of work orders completed. Looking ahead, we expect call-ups on work orders to escalate in tandem with the overall recovery in activity levels. We raise our FY22F/FY23F earnings by 35%/6% and lift our TP by 4% to RM1.30 (from RM1.25). Maintain OUTPERFORM.

Upside surprise. DAYANG’s 1HFY22 results beat expectations, with core net profit of RM54m coming in at 85% and 83% of our and consensus full-year forecasts, respectively. The variance against our forecast came largely from stronger profit recognition from offshore topside maintenance services (TMS) on the back of higher number of work orders completed.

Strongest earnings since the pandemic. 1HFY22 saw its bottom-line turned around into profit (from core loss of RM29m last year), largely driven by stronger offshore TMS, given the greater number of work orders in tandem with a recovery in local activity levels. Meanwhile, its marine charter segment also saw losses shrinking 75% YoY, on the back of stronger vessel utilisation of 46% (versus 36% last year).

Outlook to continue improving. Backed by its current order-book of ~RM1.7b, DAYANG’s earnings outlook is expected to continue improving throughout FY22-23. The group is currently experiencing higher call-ups on work orders amidst a greater demand to improve production capabilities, with activities likely to continue at an elevated level. We have highlighted DAYANG to be one of the key beneficiaries of Petronas’ latest activity outlook for 2022-2024, which guided for increased demand for offshore maintenance, construction and modification (MCM), and hook-up and commissioning (HUC) works.

Forecasts. We raised our FY22F/FY23F earnings by 35%/6% to account for the stronger work orders prospects for its offshore TMS.

Maintain OUTPERFORM, with a higher TP of RM1.30 (from RM1.25 previously), pegged to 15x PER on FY23F EPS, which is at a 25% discount versus the average valuation of offshore maintenance peers back in 2014 (being the last year in which Brent crude was trading above USD100/barrel, prior to the recent rally). A discount is applied versus valuations from the previous oil upcycle due to current business climate being much more demanding as clients currently are much more prudent in spending unlike the yesteryears. There is no change to our TP based on its 3-star ESG rating as appraised by us (see Page 4).

Overall, we like DAYANG for its promising earnings recovery visible in the coming quarters – with it being a good play on the overall recovery of local oil and gas activity levels.

Risks to our call include: (i) a sharp decline in oil demand and prices if the global economy slips into a recession, (ii) non-renewal of licenses issued by oil majors, and (iii) the entrance of irrational new players.

Source: Kenanga Research - 19 Aug 2022