After our latest investor meeting with Dayang, we remain positive on the stock  and  maintain  our  BUY  call  and  MYR4.80  TP.  From  our  recently hosted  corporate  digest  luncheon,  we  learned  that  its  additional HUC/TSM activities  could  provide  around  14% upside to the company’s MYR4.2bn  orderbook.  We  believe  the  current  share  price  has  yet  toreflect this information. Dayang is also expanding into EPCC jobs.

• Luncheon takeaways. We organised a luncheon for >10 fund managers with  Dayang  Enterprise  (Dayang)’s  management.  Key  takeaways include: i)  its  hook-up and commissioning (HUC) works for Shell, Murphy and  Nippon  are  fully  mobilised,  ii)  Petronas’  HUC  activities  are  only expected to be in full swing in 1Q15, contrary to our earlier assumption of 2H14,  iii)  additional  works  from  the  old  Petronas  HUC  and  topside maintenance (TSM) contracts could provide a ~14%  upside to Dayang’s orderbook of  around MYR4.2bn as at July 2014, and iv)  the  outcome  of the  MYR400m  tenders  for  engineering,  procurement,  construction  and commissioning (EPCC) jobs may be known by September.
• Maintain forecasts. We keep our forecasts, which are above consensus estimates by 1%/5% for FY14/15F. We believe consensus has included the slow progress of Petronas’ HUC work, but has yet to fully factor in the recognition of additional HUC/TSM activities. We adjusted our orderbook assumptions accordingly by lowering the recognition from Petronas’ HUC jobs for FY14, but included the additional HUC/TSM jobs,  given our highconfidence for the contracts to materialise. Such “farm-in” contracts were normal in its historical operations (see page 3 for assumptions).
• Reiterate BUY, MYR4.80  FV  (based on  a  16x FY15F P/E) to reflect the company’s  sizeable market share  and  solid  track  record  as  a  premium service provider for offshore HUC and TSM. At  a  45% 2-year earnings CAGR with a 5-year earnings visibility, Dayang deserves  to trade above the small- to mid-cap O&G P/E of 15x. Expansion into EPCC support is a long-term positive for Dayang,  given opportunities for synergistic tie-ups with reputable EPCC players like Ranhill WorleyParsons and RNZ.
• Scenario  analysis.  Assuming  ~MYR0.6bn  additional  contracts,  we estimate a potential impact of  -10%/+8%  for FY15F earnings (-7%/+2% for  FY14F  earnings).  The  low  end  of  our  analysis  assumes  that  the additional  contracts  did  not  happen.  The  high  end  of  our  analysis assumes  full-materialisation  of  the  contracts  limited  by  the  group’s historical annual burn-rate. This translates into a FV range of MYR4.35-5.20.

Source: RHB