DAYANG has been appointed by Petronas Carigali as one of the panel contractors for offshore support vessels (OSVs) for a three- year period. This is a positive development, as it allows DAYANG to potentially benefit from higher charter rates for its vessels in the coming years. We maintain our earnings forecasts as we have already imputed 80% vessel utilisation and 13% rate increase for its vessels for FY24F and FY25F, TP of RM3.31, and OUTPERFORM call.

DAYANG has been appointed by Petronas Carigali as one of the panel contractors for offshore support vessel (OSV) services for petroleum arrangement contractors, with three-year duration. This is a positive development for the group, which currently owns seven OSV vessels, consisting of five maintenance work vessels and two supply boats. Based on our understanding, the vessels are primarily utilised for offshore maintenance works albeit these are smaller capacity vessels compared to the accommodation work boats.

Our channel checks suggest that these vessels could command a daily charter rate (DCR) ranging from RM10,000 to RM15,000, representing a significant increase compared to FY23 rates, which were estimated at RM8,000 to RM11,000. As a pre-approved panel contractor, DAYANG’s vessels will be eligible to bid for potential charters (ranging from weeks to a year) from Petronas Carigali with shorter lead times over the next three years. While the inclusion does not mean firm work for its vessels, we believe that the anticipated ramp-up in offshore maintenance activities will result in its vessels achieving our 80% vessel utilisation assumption for FY24F and FY25F.

Forecasts. Maintained.

Valuations. We maintain our TP at RM3.31 pegged to an unchanged 13x FY25F PER, which is at a 1x multiple premium to the average forward P/E of 12x of its peers, i.e. PENERGY (Not Rated), DELEUM (Not Rated) and UZMA (Not Rated) during the up-cycle in 2014 to reflect DAYANG’s market leader position in the topside maintenance space and its significantly larger market capitalisation. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We like DAYANG due to: (i) the expected ramp-up in upstream maintenance activities as well as the anticipated expansion in project margins due to better contract terms secured, (ii) its net cash balance sheet allowing for more potential expansions, and (iii) its marine division (PERDANA, NOT RATED) set to benefit from the boom in OSV upcycle on the back of supply crunch in the local OSV market.

Maintain OUTPERFORM.

Risks to our call include: (i) significant decline in Brent crude prices, (ii) unexpected vessel downtime due to unplanned maintenance, and (iii) decline in oil producers’ capex planned.

Source: Kenanga Research - 16 Aug 2024