DAYANG’s 9MFY22 results blew expectations away, thanks to higher work orders at its offshore maintenance coupled with stronger vessel utilisation. 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 36%/28%, lift our TP by 31% to RM1.70 (from RM1.30) and maintain our OUTPERFORM call.

Earnings well exceeded expectations. DAYANG’s 9MFY22 core net profit of RM111m blew expectations away. The number already surpassed our full-year forecast by 28%, and the full-year consensus estimates by 20%. The variance against our forecast came largely from higher work orders at its offshore topside maintenance (TMS), as well as strong vessel utilisation at its marine charter division.

Strongest set of earnings since the pandemic. 9MFY22 saw a YoY turnaround from losses, driven by the resurgence of demand for its offshore TMS work orders, while vessel utilisation for its marine charter has also surged up to 57%, versus 46% last year.

Outlook continues improving. While we may see seasonally weaker earnings for the upcoming two quarters due to the monsoon, we believe overall outlook for 2023 will continue improving from this year – premised on increasing demand for work orders leading to possible rate revisions, with activities likely to continue at an elevated level. This is further backed by DAYANG’s current order book of RM1.6b, which should provide ~2 years of revenue visibility.

Forecasts. Post results, we raise our FY22F/FY23F earnings by 36%/28%, to account for the stronger work orders from offshore TMS, as well as the stronger vessel utilisation for its marine charter.

Maintain OUTPERFORM. Following the earnings upgrade, our TP is also raised to RM1.70 (from RM1.30 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 given: (i) it is a beneficiary of the rising demand for offshore maintenance works in the coming few years, as guided in Petronas’ Activity Outlook, (ii) its market leading position within the offshore maintenance space with the highest market share as competitors are thinning out, and (iii) its improving balance sheet which is expected to turn into a net-cash position in the coming 1-2 years.

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 aggressive new players.

Source: Kenanga Research - 21 Nov 2022