INVESTMENT HIGHLIGHTS

• Dayang Enterprise Holdings Bhd’s (Dayang) 1QFY17 earnings sank into the red at –RM42.6m

• Vessel utilisation rate for for Perdana Petroleum at meagre 24%

• Offshore segment still profitable

• Total orderbook still remains strong at approximately RM2.6b – burn rate to last into 2019

• Tenderbook at RM4b

• Maintain NEUTRAL with a revised target price of RM0.96

Earnings drag from Perdana. Dayang’s 1QFY17 earnings sank into the red at -RM42.6m. The unexpected losses were largely due to low vessel utilisation rate from Perdana Petroleum of 24% compared with 50% in 1QFY16 and 58% in 4QFY16. Losses from Perdana in 1QFY17 totalled –RM45.9m. The lower than expected utilisation rate was due to some vessels undergoing maintenance and upgrading works, apart from the seasonal monsoon factor.

Offshore segment. Segment revenue and profit for Dayang’s Offshore segment registered year-over-year growth to RM105m and RM27m respectively.

Current orderbook. Dayang’s current orderbook currently stands at RM2.6b lasting through into 2019. The company’s tenderbook is in the tune of approximately RM5b. The bulk of the orderbook will be calledout in 2018 and into 2019.

Frontrunner for MCM works. We remain sanguine that Dayang will be one of the frontrunners for the Petronas maintenance, construction and modification (MCM) umbrella contracts which are worth approximately RM5b in totality as Dayang has: (i) 7 work barges with an average age of 4.7 years old and; (ii) 9 work boats with an average age of 5.9 years old. All of which are fit for purpose, within the stringent specifications required by Petronas and its production sharing contractors.

Impact on earnings. Due to the lower than expected utilisation rate for 1QFY17, we are trimming our earnings forecast for FY17 and FY18 downwards by -40.5% and -8.35 respectively.

Maintain NEUTRAL. We are maintaining our NEUTRAL stance with a revised target price of RM0.96 per share. At current market price level, we opine that further upside potential is limited. Nonetheless, we are still positive on Dayang as we expect the company to perform well moving forward into FY18 premised on: (i) expected positive earnings from higher callouts; (ii) strong stable orderbook from top tier clients; (iii) strong frontrunner for Petronas MCM works and; (iv) undemanding trading valuation. We roll forward our valuation base year to FY18 with PER18 of 12.5x pegged to EPS18 of 7.7sen. The target PER17 is based on a 0.5-standard deviation discount to the company’s five-year average rolling PER of 15x

Source: MIDF Research - 25 May 2017