Dayang  Enterprise’s  FY14  results  came  in  below  expectations  at  only 89%  and  93%  of  our  and  consensus  estimates  due  to  margin compression.  Maintain BUY with a lower TP of MYR3.40 (20% upside), based on 13x FY15 P/E. We lower our FY15 earnings forecast by 10% as we  do  not  expect margins  to  recover  to  historical  levels,  but  lift  FY16earnings by 4% on higher contribution from Perdana Petroleum.

FY14 core profit of MYR178.1m.  Dayang Enterprise’s  (Dayang)  FY14 revenue  came  in  at  MYR876.9m,  a  59%  YoY  increase  on  the  back  of higher work orders received for the hook-up and commissioning (HuCC) contracts  that  were  awarded  in  May  2013.  Core  profit  increased  by 47.7%  YoY,  in  line  with  the  increase  in  revenue.  Contribution  from Perdana  Petroleum  (PETR  MK,  BUY,  TP:  MYR1.53)  made  up  10%  of the  consolidated  PBT  –  Dayang  owns  28.6%  of  Perdana  Petroleum. 4Q14 EBIT margin  was severely dragged down to 13.9%  due to lowerprofit margin work  done for the quarter. This dragged down the full-year EBIT margin  to 23%, compared with  29% and 32% for FY13 and FY12 respectively.  

Outlook.  Dayang’s  orderbook still stands at MYR4.0bn, mostly made up of  HuCC  contracts  that  should  keep  the  group  busy  until  2018.  Recall that  Dayang  has  also  entered  into  engineering,  procurement, construction  and  commissioning  (EPCC)  projects  with  a  MYR280m contract  awarded  by  Petronas  Carigali  for  the  Bardegg-2  and  Baronia brownfield  major  modification  work.  We  expect  the  good  margins  that Dayang had enjoyed in the previous years to be under threat, given costcutting measures  by oil majors  as well as renegotiation of contracts with service providers.  However, not all is lost as we  believe  HuCC work will still  continue  as  oil  majors  need  to  maintain  their  rigs,  platforms  and other offshore structures to ensure production is running at capacity.

Maintain  BUY  with  a  MYR3.40  TP.  We  reiterate  our  BUY recommendation  with  a  lower  TP  of  MYR3.40  (from  MYR3.86,  20% upside),  based on 13x FY15 P/E. We continue to like Dayang as it is the premier  local  oil  and  gas  services  player  and  has  an  excellent  track record. The stock is currently trading at 10x FY15 P/E.