INVESTMENT HIGHLIGHTS

• Dayang Enterprise’s 4QFY18 reported earnings surged by +277.1%yoy to RM97.7m

• Revenue expanded by +64.9%yoy to RM285.6m premised on higher work orders

• Perdana Petroleum registered earnings of RM9.2m

• Orderbook of RM3.0b to last until 2023

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

Reported earnings surged +277.1%yoy. Dayang’s 4QFY18 reported earnings surged by +277.1%yoy to RM97.7m which is its highest ever quarterly earnings. However, its normalised earnings after stripping out net reversal for impairment loss on PPE of RM19.0m came in at RM82.3m. The company’s revenue grew by +64.9%yoy to RM285.6m whilst its cumulative normalised FY18 earnings registered a profit of RM164.2m which beat ours and consensus’ expectation by >105% respectively. The growth in revenue is mainly attributable to higher work orders received and performed under the topside maintenance services during the quarter.

Perdana Petroleum continues to show improvements. Perdana Petroleum continues to show improvements with a reported net profit of RM9.2m vs -RM43.7m in 4QFY17 attributable to higher vessel utilisation rates of 73% compared with only 51% in 4QFY17.

Higher work orders drove earnings. The company delivered its highest quarterly earnings in 4QFY18 despite the quarter being seasonally weak quarter for the company due to the monsoon season. However, during the quarter, offshore activities were ramped up and works continued to be issued under time write (unit rates) and lump sum works. This is also premised on robust work orders issued for the Maintenance, Construction and Modifications Contract (MCM) and Topside Maintenance Services works under the Pan Hook-up and Commissioning Contract (Pan HUC) which were rolled out in the fourth quarter.

Orderbook of RM3.0b to last to 2023. 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 the company through to 2023. 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. We are maintaining our FY19F earnings estimate at this juncture as we await for further announcements on the debt restructuring for Perdana Petroleum under the Corporate Debt Restructuring Committee (CDRC) of Bank Negara which is still in progress.

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) Improving operating climate with higher activity levels and improving UR and; (iii) 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 - 25 Feb 2019