INVESTMENT HIGHLIGHTS

• Dayang Enterprise’s 2QFY18 reported earnings grew by +178.7%yoy to RM38.9m

• Reported earnings returned to black

• Revenue expanded by +15.8%yoy to RM221.3m premised on higher work orders

• Maintain BUY with revised TP of RM1.30 per share

Reported earnings swing into the black. Dayang’s 2QFY18 reported earnings swung into the black to RM38.9m. The company’s revenue grew by +15.8%yoy to RM221.3m whilst its cumulative normalised FY18 earnings registered a profit of RM17.7m. The growth in revenue is mainly attributable to higher work orders received and performed under the topside maintenance services during the quarter. Hence, we remain optimistic and maintain our expectations of stronger 3QFY18. Our expectation is based on strong sustainable activity levels for the subsequent quarters.

Perdana Petroleum profitable. After many quarters of operational losses, Perdana Petroleum staged a turnaround attributable to good utilisation rates of 70% compared with only 28% in 2QFY17.

Current jobs at hand. The company guided that activity levels for the Maintenance, Construction and Modifications Contract (MCM) and Topside Maintenance Services works under the Pan Hook-up and Commissioning Contract (Pan HUC) have picked up substantially in 2QFY18. Similarly, its vessel UR also witnessed an improvement at 70% during 2QFY18 vs 27% in the first quarter of FY17. The company also disclosed that it has managed to secure orderbook replenishment of more than RM1.0b for the next five years, bringing its total orderbook to RM3.0b lasting through to 2023.

Tenderbook. The company is currently participating in bids worth about RM600m – both locally and overseas. The company remains fairly confident of winning a portion given its track record and successful campaigns in similar projects.

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 6.5years old. All of which are fit for purpose, within the stringent specifications required by Petronas and its production sharing contractors.

Impact on earnings. No changes to earnings estimates.

Reiterate BUY. We are reiterating our BUY recommendation on Dayang with a rolled forward revised target price of RM1.30 per share. Our BUY recommendation is premised on: (i) Large potential share 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 PER19 of 12x pegged to EPS19 of 10.8sen. Our target PER is based on the company’s two-year historical average PER.

Source: MIDF Research - 27 Aug 2018