We see Dayang Enterprise (Dayang) as a strong contender for the MYR8bn-MYR10bn Pan Malaysia HUC tender due to be awarded soon. Following an internal coverage revamp, we are revisiting our financial model and now expect MYR400m in annual orderbook replenishment for the company. Dayang’s existing MYR1.2bn-strong orderbook stretching up to 2017 reinforces our conviction on the stock. Thus we retain our BUY call, with a revised FV of MYR4.30, pegged to 15x FY14 EPS.

-  Strong contender in Pan Malaysia HUC tender. Our channel checks suggest that the Pan Malaysia hook-up and commissioning (HUC) tender will be awarded soon. While the quantum of Dayang’s contract win remains uncertain at this juncture, we believe that the company could potentially secure at least MYR2bn worth of jobs, which will translates into an annual orderbook replenishment of MYR400m moving forward.

-  Further rerating in store. While the stock is already trading at +2 standard deviations of its forward P/E, we believe that a higher-thanexpected order win could prompt a further rerating, given the long-term tenure of the contract (five years), which will boost Dayang’s earnings visibility. We estimate that every additional MYR100m in contract value won per annum would lift our FY14 earnings estimate by 14.3%.

-  Vessel capacity not an issue. Given that Dayang has the option to charter vessels from its associate company, Perdana Petroleum, we believe that the group will have the capacity to accept the anticipated contract should it win its bid. That said, we believe that net margins are likely to slide since Dayang would need to beef up on manpower and charter new vessels to cater for the new jobs secured, although this may be partially offset by positive earnings contribution from Perdana Petroleum.

-  Dividend yield attractive. Dayang is sitting on a solid balance sheet with net cash totaling MYR86.1m. Since 2010, it has been consistently paying out more than 50% of its total earnings. Assuming a dividend payout of 50.0%, investors can look forward to dividend yields of 3.2% for FY13 and 4.2% for FY14.

Source: RHB