Investment Highlights

• Dayang Enterprise Holdings Bhd’s (Dayang) 3QFY17 reported earnings broke even at RM0.12m

• Normalised earnings excluding exceptional items at RM9.5m

• Earnings up-cycle from MCM to start in 2HFY18

• Total orderbook in excess of RM3b

• Upgrade to BUY with unchanged TP of RM0.83

Impressive normalised earnings. Dayang’s 3QFY17 reported profit broke even at RM0.12m. Excluding forex losses and impairment losses on receivables, Dayang’s normalised 3QFY17 earnings is RM9.5m. The company’s normalised cumulative 9MFY17 earnings excluding impairments on PPE, impairment losses on receivables and forex losses amounted to –RM44.3m. This in our opinion represents a huge improvement compared to the large losses incurred previously. Moving forward, with the improvements in activity levels coupled with the relisting of Perdana Petroleum, the company will be in a better financial position.

Improvements in offshore activity levels. Dayang noted that activity levels are improving, evident from the rise in revenue of +4.5%yoy. Vessel utilisation rates and higher work orders are being seen due to more stable and rising crude oil prices – in particular for the hook-up and commissioning works, topside maintenance services and engineering procurement construction and commissioning works.

Fleet utilisation rate improving. The company’s utilisation rates (UR) of its 25 offshore support vessels are improving. UR for 3QFY17 was above 75% (higher than regional average) compared to only 44% in 2QFY17. Average fleet UR for FY17 stands at 53%.

Current orderbook. Inclusive of the newly secured MCM, Dayang’s current orderbook currently stands at more than RM3b lasting through into 2022. We are in agreement with the company’s optimism of a busy FY18.

Tenderbook. The company guided that it is in the midst of preparing for more bids, in particular the PAN MCM mid-December 2017 which is expected to also be sizable.

Dayang’s forte. Dayang is no stranger to Petronas maintenance, construction and modification (MCM) works as it was the incumbent for the previous HUC contracts from 2013. Currently, Dayang on its own has: (i) 7 work barges with an average age of 5 years old and; (ii) 9 work boats with an average age of 6.5 years old. All of which are fit for purpose, within the stringent specifications required by Petronas and its production sharing contractors.

Impact on earnings. No change to earnings estimates at this juncture.

Earnings upcycle to start in 2HFY18. As we expect Dayang’s earnings upcycle to start in 2HFY18, we are recommending investors to now take a long position on the stock due to its share price adjustment from the distribution of dividend in specie of Perdana Petroleum shares.

Upgrade to BUY. We are upgrading Dayang to BUY with an unchanged TP of RM0.83 per share. Our BUY recommendation is premised on: (i) Large potential share price upside from dividend in specie adjustments; (ii) Earnings up-cycle in FY18; (iii) Improving operating climate with higher activity levels and improving UR and; (iv) Improving conditions for Perdana Petroleum. Our valuation is premised on PER18 of 12.5x pegged to EPS18 of 6.6sen. The target PER18 is based on a 0.5-standard deviation discount to the company’s five-year average rolling PER of 15x.

Source: MIDF Research - 22 Nov 2017