INVESTMENT HIGHLIGHTS

• Dayang Enterprise’s 4QFY17 results recorded a loss as forewarned

• Massive impairment charges and unrealised forex losses recorded for the year

• High activity levels seen in FY18

• Current orderbook in excess of RM3.4b

• Reiterate BUY with upgraded TP of RM1.06 per share

FY17 losses forewarned – Kitchen sinking. Dayang’s 4QFY17 results staged a normalised loss of –RM19.5m. Its cumulative FY17 normalised earnings (excluding impairment charges on assets and unrealised forex losses) amounted to –RM49.1m. The loss were further exacerbated by deferred tax expenses of –RM52.8m charged in 4QFY17 bringing full year FY17 tax expense to –RM88.4m.

Commendable utilisation rate. Dayang’s fleet utilisation rate for FY17 stood at a commendable 52% despite a drop in average charter rates of approximately 25% during the year. Moving into 2018, Perdana’s fleet UR is expected to increase to between 70-80%. Our assumption is guided by Petronas’ Activity Outlook Report 2017-2019. The higher utilisation rate is already being seen in the latter part of 4QFY17 and into 1QFY18.

Positive debt management. Total debts has decreased by approximately RM360m (-22%yoy), partly due to proceeds from private placements.

Current orderbook. Dayang’s current orderbook stands at approximately RM3.4b, with long term contracts ranging from two to five years. (refer to table below).

Tenderbook. The company is also in the midst of increasing its orderbook, currently participating in RM8b worth of tenders.

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) 6 work vessels and; (ii) 2 supply boats with an average age of approximately 6.5 years old. All of which are fit for purpose, within the stringent specifications required by Petronas and its production sharing contractors.

Earnings to stage massive leap. Taking into consideration (i) work orders for Dayang’s MCM portion; (ii) Petronas’ activity outlook for 2017-2019; (iii) Strong utilisation rate for both Dayang and Perdana’s vessels and; (iii) Perdana Petroleum’s potential turnaround in 2018, we believe that FY18 will record strong revenue, possibly matching that of FY14 along with strong year-over-year profit.

Earnings upcycle to start in 2QFY18. We were previously expecting the earnings upcycle to only start in the latter part of FY18. However, from the offshore activity levels that are currently taking place, we believe that the earnings upcycle for Dayang could start as early as 2QFY18.

Impact on earnings. No change to earnings estimates

Reiterate BUY. We are reiterating our BUY recommendation on Dayang with an upgraded TP of RM1.06 per share. Our BUY recommendation is premised on: (i) Large potential share price upside; (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 revised PER18 of 14x (previously 12.5x) pegged to EPS18 of 7.6sen. Our target PER is based on the company’s two-year historical average PER.

Source: MIDF Research - 26 Feb 2018