Daya  Materials  (Daya)’s  9MFY13  core  net  profit  was  below  our expectation  -  at 57% of our full-year estimate  due to higher  costs. We lower  our FY13/FY14 earnings estimates  by 46%/13% respectively, but remain positive on  the company’s prospects  due to its expanding fleet and higher  average  daily charter rates. Maintain BUY, but  with  a  lower FV of MYR0.42, based on unchanged target FY14 P/E of 15x.

• 9MFY13 core net profit below our estimate.  Daya’s 9MFY13 core net profit made up 57% of our full-year estimate, largely  owing to:  i)  surging operating costs (+109% y-o-y), ii) higher interest costs (+55% y-o-y), and iii)  the 30%  effective tax rate was higher than the  statutory  rate of  25%. Management  revealed  that  the  projects  currently  undertaken  by  its technical  services  (TS)  division  contributed  to  the  lower  profit  after  tax (PAT) margin of 2-4% vs the historical 8-11%.      
• Siem  Daya  3  (SD1)  to  join  fleet  by  April  2015.  Management  said  it may be deploying  SD1  to Brazil  at  a higher daily charter rate (DCR) of USD130,000/day  vs  USD102,000/day  to  Technip  Norge.  This depends on  the  vessel’s  availability  since  Technip  is  negotiating  to  extend  the charter period  to  more than  210 days  from 100-175.  Management  said the  delivery  of  SD3,  which  is  currently  under  construction  and  will  be chartered  from  Siem  Offshore  (SIOFF  NO,  NR),  may  be  expedited  for deployment to the additional contract.
• More earnings upside yet to be accounted for. Management informed us that it will soon be  signing a long-term charter with a New York-based private equity (PE) fund for a dynamic positioning diving support vessel (DPDSV).  The  vessel  can  be  chartered  to  a  third  party  at  a  DCR  of USD170,000-USD240,000/day,  commanding an  estimated  profit before tax (PBT) margin of 30%.
• Maintain BUY,  with FV MYR0.42.  We lower our  FV to MYR0.42 (from MYR0.48),  with an  unchanged target FY14 P/E of 15x,  as we  lower  our FY13 and FY14 earnings estimates  by 46%/13% respectively. This is  to reflect the lower TS division contribution. However, we remain upbeat on Daya’s oil & gas (O&G) segment owing to: i)  its  growing fleet of vessels, leveraging  on  its  tie-up  with  SIOFF,  ii)  growing  footprint  in  subsea services, and iii) management’s approach in ensuring that its TS division undertakes projects that yield better profit.

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Company Profile
Daya Materials Bhd is a small integrated oil & gas (O&G) player that offers mainly offshore and onshore services. Its operation ranges from providing complete logistic, trading and distribution of specialty chemicals & catalysts, technical services to the down stream O&G sector; and subsea, crane and mechanical & engineering services. It also markets and sells specialised polymer compounds with   a distributorship network that spans Asia.

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Source: RHB