Dayang Enterprise informed Bursa Malaysia yesterday that it has secured a MYR2.0bn contract to provide hook-up, commissioning and topside maintenance services from Sarawak Shell/Sabah Shell Petroleum Company. Pending more job wins, we are downgrading the stock to a NEUTRAL for now. Accumulate on weakness.

Five-year contract with one-year extension option. The latest contract will boost Dayang Enterprise (DEHB)’s orders from the Pan-Malaysia hook-up and commissioning (HUC) project to about MYR2.3bn to date YTD. Bagging this contract will enhance the company’s earnings visibility for the next five years.

Maintaining our forecasts. We estimate that the latest contract will contribute some MYR72m-MYR80m in earnings (based on a net margin assumption of 18%-20%), making up 39.3% to 43.7% of our FY14 earnings estimate. We make no changes to our FY14 earnings forecast as we have already incorporated the MYR2.5bn worth of new contracts secured for the year.

Upside surprise highly possible. We note that there are still contracts from the Pan-Malaysia HUC project that have yet to be awarded and understand that DEHB has set its sights on landing another job. Hence, there may be an upside to our earnings estimate if the company manages to secure more than MYR200m worth of orders.

Stay invested in the longer run. While we view the latest news as positive, we believe the company could see some share price weakness in the short term. We advocate that investors accumulate on any price weakness. Given the company’s excellent operation track record, it will have clear earnings visibility for the next five years, which bodes well for its share price in the longer term. However, we are downgrading the stock to a NEUTRAL for now, until the company secures higher-than-expected contract wins.

Source: RHB