INVESTMENT HIGHLIGHTS

• Dayang Enterprise’s 2QFY19 reported earnings improved by +41.8%yoy to RM55.1m

• Revenue grew by +11.7%yoy to RM247.2m premised on higher work orders and higher vessels utilisation

• Perdana Petroleum registered narrowed loss of –RM5.4m

• Orderbook of RM3.0b to last until 2023

• Maintain BUY with a revised TP of RM1.70 per share

Earnings grew by +41.8%yoy to RM55.1m. Dayang’s 2QFY19 earnings grew by +41.8%yoy to RM55.1m from RM38.9m in 2QFY18. This brings its 1HFY19 earnings to RM51.0m which is within our but below consensus’ full-year FY19 earnings expectation at 49% and 43% respectively. During the quarter, the company’s revenue grew by +11.7%yoy to RM247.2m driven mainly by higher work orders received and performed under the topside maintenance contracts when compared against last year as well as; higher vessels utilisation.

Perdana Petroleum continues to show improvements. Perdana Petroleum continues to show improvements with a reported net loss of -RM5.4m in 2QFY19 vs –RM32.9m in 1QFY19 attributable to higher vessel utilisation rate of 79% compared with only 36% in 1QFY19 and 70% in 2QFY18. Revenue was also higher by +44.7%yoy attributable to improved work orders/contract awarded from oil majors in 2QFY19.

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 FY19-20F earnings estimate at this juncture.

Maintain BUY. We are maintaining our BUY recommendation on Dayang with a revised target price of RM1.70 per share (from RM1.30 previously) as we roll forward our valuation base period to FY20. 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 PER20 of 12x pegged to EPS20 of 14.2sen. Our target PER is based on the company’s two-year historical average PER.

Source: MIDF Research - 26 Aug 2019