DAYA’s  FY13  net  profit  made  up  14%  of  our  estimate  due  to  cost overruns from its first subsea project. We view  this  as a one-off event. Other  businesses  performed  decently,  cushioning  the  impact  of  the weak oil & gas (O&G) division. Hence, proper execution of the Technip project in 2Q14 is paramount to improving this segment. We downgrade DAYA to NEUTRAL with our FV unchanged at MYR0.48 for now.

• FY13  only  14%  of  our  estimate.  Daya  Materials  (DAYA)’s  FY13  net profit made up only 14% of our full-year estimate. The massive miss was caused by  cost overruns  at  its first subsea project, a sub-contract work with  SapuraKencana  Petroleum  (SAKP  MK,  BUY,  FV:  MYR5.61)’s wholly-owned subsidiary TL Offshore.  Its  polymer segment swung back to the black with a PBT of MYR0.3m from FY12’s MYR0.1m loss.
• 4Q  dragged  down  full-year  results.  DAYA’s  4Q13  performance  was understandingly disappointing,  as  it  bore  the brunt of cost overruns  at its offshore  O&G  segment.  Its  other  segments  recorded  decent  quarterly performances,  with  its  polymer  segment  swinging  back  into  the  black after a loss in  4Q12  and weak 1% PBT margin in 3Q13.  The technical services  segment  posted  an  encouraging  9%  PBT  margin,  in  line  with historical performance and a significant improvement vs 3Q13’s 3%. 
• Making amends by 2Q14.  1Q14 will not  see  significant improvements from  4Q13,  but  we  expect  the  situation  to  turnaround  by  2Q14.  Both DAYA’s  vessels  –  Siam Daya 1 (SD1)  and  Siem Daya 2 (SD2)  –  have been deployed to the North Sea and will contribute  throughout the entire 2Q14.  This  has  been taken  into account in our FY14/15 forecasts.  We understand from management that it is  also  in talks with Technip Norge for the charter of a third similar vessel.
• Downgrade to  NEUTRAL  with  an  unchanged MYR0.48  FV.  We view DAYA’s  4Q13  results  as  a  one-off.  We  expect  its  O&G  segment  to improve  in  2Q14  on  commencement  of  its  subsea  contracts  with Technip.  Hence,  proper  execution  will  be  key  in  offsetting  4Q13’s disappointing  offshore  O&G  segment.  We  downgrade  the  stock  to NEUTRAL with an unchanged FV MYR0.48 for now. The FV is based on a  target FY14 P/E of 15x,  which  is  in line with other small-  to mid-cap O&G stocks within our coverage universe.

Financial Exhibits

SWOT Analysis

Company Profile
Daya  Materials  is  a  small  integrated  oil  &  gas  (O&G)  player  th at  offers  offshore  and  onshore  services.  Its  operations  range  from providing  complete  logistic,  trading  and  distribution  of  specialty  chemicals  &  catalysts,  technical  services  to  the  downstrea m  O&G sector; and subsea, crane and mechanical & engineering services. It also markets and sells specialised polymer compounds with a distributorship network that reaches across Asia.

Recommendation Chart

Source: RHB