INVESTMENT HIGHLIGHTS

• Dayang Enterprise’s 3QFY18 reported earnings surged by +68.7%yoy to RM51.3m

• Revenue expanded by +32.5%yoy to RM281.9m premised on higher work orders

• Maintain BUY with an unchanged TP of RM1.30 per share

Reported earnings surged +68.7%yoy. Dayang’s 3QFY18 reported earnings surged by +68.7%yoy to RM53.3m. The company’s revenue grew by +32.5%yoy to RM281.9m whilst its cumulative normalised FY18 earnings registered a profit of RM66.5m. The growth in revenue was mainly attributable to higher work orders received and performed under the topside maintenance services during the quarter.

Perdana Petroleum remains profitable. Perdana Petroleum continues to show improvements with a reported net profit of RM6.5m vs -RM18.9m in 3QFY17 attributable to good utilisation rates of 84% compared with only 70% in 3QFY17.

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 3QFY18. Similarly, its vessel UR also witnessed an improvement at 84% in 3QFY18 vs 70% during 2QFY18 and 27% in the first quarter of FY18. The company also disclosed after securing a larger portion of the Pan MCM contracts estimated at RM1.5-2.0b for the next five years, this brings 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 6.5 years old. All of which are fit for purpose, within the stringent specifications required by Petronas and its production sharing contractors.

Impact on earnings. Due to the strong earnings recorded during the quarter under review, we are revising our FY18F earnings upwards to RM87.8m as we revise our vessel utilisation assumption higher. However, we are maintaining our FY19F earnings estimate at this juncture.

Reiterate BUY. We are reiterating our BUY recommendation on Dayang with an unchanged 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 - 26 Nov 2018