INVESTMENT HIGHLIGHTS

• Dayang Enterprise’s 1QFY18 results expected to be strained by Perdana Petroleum

• Activity levels ramping high and expected to sustain until October 2018

• Current orderbook in excess of RM3.4b

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

Activity levels high. Dayang’s 1QFY18 reported results could still be under strain by Perdana Petroleum which is suffering from high borrowings, high interest costs and low charter rates. However, Dayang on its own is currently experiencing high activity levels especially from the maintenance, construction and modification (MCM) works. The high activity levels are expected to sustain until at least October 2018.

Commendable utilisation rate expected. We are expecting Dayang’s fleet utilisation rate to be above 50% while Perdana’s fleet utilisation rate is expected to hover around 70% in FY18. Our assumption is guided by Petronas’ Activity Outlook Report 2017-2019

Current orderbook. Dayang’s current orderbook stands at approximately RM3b, 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 upcycle to start in 2QFY18. From the offshore activity levels that are currently taking place, we believe that the earnings upcycle for Dayang could start as early as 2QFY18.

Reiterate BUY. We are reiterating our BUY recommendation on Dayang with an unchanged 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 PER18 of 14x pegged to EPS18 of 7.6sen. Our target PER is based on the company’s two-year historical average PER.

Recent share price retreat presents buying opportunity. The recent sell down in share price this week presents buying opportunity. We believe that: (i) company fundamentals remain intact; (ii) clear direction of management to reduce gearing and to rejuvenate Perdana Petroleum and; (iii) high orderbook quality obtained through track record and company merits.

Source: MIDF Research - 23 May 2018