Dayang Enterprise (DEHB) informed Bursa Malaysia yesterday that it has received a letter of award to provide HUC and topside maintenance services from Petronas Carigali. While our prediction of a short-term share price weakness was right, we believe the stock should re-rate further to reflect the company’s total contract wins of about MYR3.3bn-MYR3.5bn YTD. In line with our earnings upgrade, we upgrade DEHB to a BUY, with a revised FV of MYR6.50.

Five-year contract with a one-year extension option. While its value was not stated in the announcement yesterday, we believe that the contract should be valued between MYR1.0bn-MYR1.2bn, based on its previous contract with Petronas Carigali. Assuming a contract value of MYR1.2bn, this latest win will boost DEHB’s orders from the Pan-Malaysia hook-up and commissioning (HUC) project to about MYR3.5bn YTD.

Manpower could be an issue. We believe that the company’s net margins will likely slide, as it would need to beef up its manpower and charter new vessels to cater for the new jobs secured. However, this may be partially offset by a positive earnings contribution from Perdana Petroleum (NEUTRAL, FV: MYR1.75), in which it owns a 26.1% stake.

Imputing MYR3.8bn worth of order wins. Assuming that the contract is valued at MYR1.2bn, we estimate that this latest win will contribute some MYR43m-MYR48m in earnings (based on a net margin assumption of 18%-20%). As we had not previously factored this into our financial model, we raise our FY13 and FY14 revenue forecasts by 21.8% and 29.4% respectively and our net profit forecasts by 23.3% for FY13 and 30.6% for FY14. In total, we are assuming a total of MYR3.8bn worth of order wins from its Pan-Malaysia HUC tender, while factoring in potential variations in its orderbook due to more jobs completed at the same time.

Attractive dividend yield envisaged. Based on our revised net profit forecast with an unchanged 50% dividend payout, investors may look forward to a dividend yield of 3.0% in FY13 and 4.4% in FY14. 

Source: RHB