KEY INVESTMENT HIGHLIGHTS

• Dayang’s reported net profit hit a record high of RM107.1m in 3QFY19

• Earnings was boosted by higher profit margins on work orders and high vessel utilization rate of 91% in 3QFY19

• Current orderbook at RM2.5b provides earnings visibility for the next three years

• FY19-20F earnings revised upward to RM216.4m and RM259.4m respectively

• Maintain BUY with a revised TP of RM2.69 per share

Dayang’s 3QFY19 earnings surged by >100%yoy to RM96.5m.

Dayang Enterprise Holdings Berhad’s (Dayang) 3QFY19 reported net profit came in at a record high of RM107.1m. However, its normalized earnings – excluding a one-off gain of RM10.6m from the acquisition of a subsidiary back in July 2019 came in at RM96.5m. This brings its 9MFY19 cumulative earnings to RM147.5m which is above our and consensus’ full-year earnings estimates. Comparing against 3QFY18, revenue and earnings were higher by +26.8%yoy and >100%yoy respectively. Meanwhile on a quarterly sequential basis; revenue and earnings climbed by +44.7% and +75.2%% respectively. This was primarily attributable to higher work orders from the maintenance contracts performed during the quarter and higher vessel utilization rate.

Perdana Petroleum reported net profit surged to RM18.1m.

Perdana Petroleum’s reported net profit surged by >100%yoy to RM18.1m in 3QFY19. However, its normalized earnings excluding EI came in at RM7.5m. This was mainly attributable to higher vessel utilization rate during the quarter at 91% vs 79% in 2QFY19 and 36% in 1QFY19. Its YTD vessel utilization rate is currently at 69% which is higher than the 9MFY18 utilisation rate of 61%. The higher utilization rate is primarily due to improved work orders/contracts awarded by oil majors during the quarter.

Higher productivity and efficiency boosted margins. Aside from the better revenue recognition from its work orders, the record high profit recorded by Dayang in 3QFY19 is also attributable to higher productivity and improved efficiencies in work orders performed under its topside maintenance contracts. This has resulted in higher profit margins recorded for the maintenance work orders during the quarter.

Orderbook amounts to RM2.5b as of September 2019. Dayang’s orderbook as at end-September 2019 amounts to RM2.5b and this is expected to last Dayang until 2023. Given the ramp-up seen in activities as well as; leveraging on its proven track record of providing MCM services, Dayang is set to secure more contracts in the future given that it is now at an advantage due to its collaboration with Perdana Petroleum.

Earnings impact. Due to the stronger-than-expected earnings, we are revising our FY19-20F earnings to RM216.4m and RM259.4m respectively as we factor in better profit margins on its projects and higher utilization rate on its vessels.

Maintain BUY with a revised TP of RM2.69. Post earnings revision we are maintaining our BUY recommendation on Dayang with a revised target price of RM2.69 (from RM1.70 previously). Our TP is premised on a revised PER20 of 10x pegged to EPS20 of 26.9sen. We remain sanguine on Dayang’s growth prospects going forward given the: (i) upbeat activity levels; (ii) increasing profit margins on work orders; (iii) improving conditions and turnaround of Perdana Petroleum and; (iv) strong and proven track record as one of the leading MCM service provider.

Source: MIDF Research - 25 Nov 2019