DAYANG’s stronger FY22 results met expectations, helped by a resurgence in demand for offshore maintenance works and higher vessel utilisation. Looking ahead, we expect call-ups on work orders to escalate, in tandem with the overall recovery in activity levels. We kept our FY23F earnings unchanged, while introducing new FY24F numbers, lift our TP by 12% to RM1.90 (from RM1.70) and maintain our OUTPERFORM call.

Results within expectations. FY22 core net profit of RM116m met expectations.

Strongest year since the pandemic. YoY, FY22 core net profit jumped 2.7x, led by increase in work orders awarded by oil majors amidst a resurgence in demand for offshore maintenance works. Its vessel utilisation rate also improved to 60% from 44%.

Outlook remains promising. While the upcoming 1QFY23 may remain seasonally weaker due to the monsoon, we believe the outlook for 2023-2024 remains promising. This is premised on the increasing demand for offshore maintenance works, leading to upward rate revisions and elevated activities level. Furthermore, DAYANG’s order book at RM1.4b should provide ~2 years of revenue visibility.

Forecasts. Post results, we maintain our FY23F earnings, while introducing new FY24F numbers.

Maintain OUTPERFORM, with a higher TP of RM1.90 (from RM1.70 previously), as we roll forward our valuation base year to FY24F – pegged to an unchanged valuation of 15x PER, 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 on valuations from the previous oil upcycle due to current business climate being much more demanding as clients 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 - 17 Feb 2023