DAYANG has secured one Pan Malaysia package (or MCM and HUC) from SSB/SSPC. The award, estimated at RM1b for its firm period, aligns with expectations, with projected margins around 20% due to heightened competition, contributing approximately RM30m in net profit per year. Despite potentially lower project margins, DAYANG's overall profitability should remain strong, supported by its RM1.2b order book with favourable terms. The stock is attractively valued at 8.5x FY24F PER, below its 5-year average of 11.7x. We maintain our forecast and TP of RM3.80 and maintain our OUTPERFORM call.

DAYANG announced on Bursa Malaysia that it has been awarded the contract for Pan Malaysia Maintenance, Construction & Modification (MCM) and Hook-Up & Commissioning (HUC) services for Package Four by Sarawak Shell and Sabah Shell Petroleum Company (SSB/SSPC). The contract, effective from 14 October 2024, spans a primary period of five years, with optional three- and two-year extensions (5+3+2).

The contract win is within expectations, representing a single package estimated at RM1b over the five-year firm period. Assuming a net margin of 20% (which is conservative compared to the company's usual guidance due to higher interest from other contract bidders), the contract could contribute approximately RM40m in PAT annually. We expect the group's margins to remain resilient in FY25, supported by its existing higher-margin order book and improving trends in its OSV segment (PERDANA). That aside, we believe that it could still potentially win more packages from Petronas for the Pan Malaysia contract.

Outlook. With an order book valued at RM1.4b, the company has more than sufficient runway to sustain its topside maintenance work orders in FY24 which will also mark the tail-end of the yearly extension of its previous umbrella topside maintenance and hook-up & commissioning (HUC) contracts from Petronas and other clients. We believe that the next round of umbrella contracts could be awarded by the end of FY24, and if not, DAYANG is likely to secure extensions for its maintenance works due to the expected high demand.

Forecasts. Maintained as its existing work orders still command high margin and its OSV arm, PERDANA (NOT RATED) is still expected to see an uptrend in margins due to the strength in the local OSV market.

Valuations. We maintain TP at RM3.80 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.

Investment case. We like DAYANG due to: (i) the sustained 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 up-cycle. 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' planned capex.

Source: Kenanga Research - 5 Nov 2024