Dayang's 9MFY24 earnings were within our and consensus expectations, with 4QFY24 anticipated to be seasonally weaker.

YoY, earnings surged on the back of robust work orders and improved margins in topside maintenance services (TMS), alongside stronger marine division performance supported by higher charter rates. With a substantial RM5.3b order book, the stock remains attractive, trading below 1SD of its 5-year mean FY25F PER. We maintain our earnings forecasts, TP of RM3.80 and OUTPERFORM rating.

Dayang's 9MFY24 core profit of RM253.5m (after excluding EI of RM49.9m unrealised forex gain and RM9m deferred tax expense) was deemed within our (84%) and consensus expectations (84%) as the upcoming 4QFY24 quarter is expected to be weaker as it enters the monsoon season. No dividends were declared in the quarter.

YoY, revenue surged 51%, driven by stronger topside maintenance services (TMS) revenue from higher work order recognition and improved marine division performance, with vessel utilisation rising to 76% (from 60%) and higher daily charter rates (DCR). Core profit doubled (+105%) YoY on enhanced TMS and marine segmental margins due to favourable contract and charter terms.

QoQ, revenue dipped 2%, primarily due to reduced TMS work orders particularly for the topside maintenance works, leading to lower EBIT margins in the division. Higher administration expenses compounded the impact, resulting in a 25% drop in core profit.

Outlook. With an order book valued at RM5.3b, 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. That aside, its marine division is expected to sustain its positive earnings momentum in FY25 given that the demand for OSVs is expected to still improve while vessel supply outlook remains exceptionally tight.

Forecasts. Maintained.

Valuations. We maintain our TP of 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' capex planned.

Source: Kenanga Research - 22 Nov 2024