We  understand  from  Dayang  Enterprise’s  management  that  HUCC contracts  are  proceeding  normally  although  it  is  experiencing  slow work orders. Maintenance work orders are likely to pick up again due to the  need  to  maintain  safety  and  production  efficiency  standards.  We reaffirm our BUY  call with an unchanged MYR3.40  TP (59% upside), as Dayang is still the premier domestic HUCC service player.

Selldown  unwarranted. Dayang Enterprise’s (Dayang) share price  has declined by 20% over the past three trading days, in line with weakness in  the  oil  and  gas  stocks,  which  we  believe  is  symptomatic  of  investor sentiment  on  the  sector.  Management  confirmed  that  while  there  is  a slowdown in work orders exacerbated by unfavourable seasonal weather patterns,  its  various  contracts  remain  active  and  ongoing.  A  section  of the  Labuan  yard  which  is  utilised  for  minor  fabrication  works  is  being used  for  Dayang’s  engineering,  procurement,  construction  and commissioning (EPCC)  for the  Bardegg-Baronia project. Recall that the planned  yard  expansion  is  still  underway  and  will  be  completed  in  six months’ time. Dayang is, instead, hitting the ground running and utilising the available yard space for its EPCC project.  

Industry-wide  slowdown.  We  understand  that  all  oil  majors  are reviewing their cost structures as they attempt to ride through the drop in crude  oil  price  and  we  believe  all  segments  of  the  industry  will  be affected. However, we  expect any slowdown in maintenance jobs to be temporary, as offshore  platforms and structures run in severe operating conditions,  thus  need  to  be  serviced  and  maintained  constantly  for production efficiency reasons and to ensure personnel safety.  

Forecasts  and  risks.  Our  forecasts  are  unchanged.  Key  risks  to  our recommendation and TP include a continued slowdown or even deferrals in work orders throughout the year. 

Maintain  BUY. We reaffirm  our  BUY  recommendation  on Dayang  with an unchanged TP of MYR3.40 (59% upside), based on 13x FY15F P/E which is at the high end of the oil and gas counters under our universe. We  believe  the  current  selldown  is  overdone.  We  like  Dayang  for  its MYR4.1bn  orderbook  as  well  as  its  premier  position  in  the  offshore maintenance  and  services  space.  We  believe  valuations  are undemanding as it is currently trading at a 7.6x FY15F P/E.

Sensitivity analysis. We provide a sensitivity analysis on Dayang’s earnings based on: i)  our current assumption of MYR1,062m worth of work orders for 2015 from its various  hook-up,  construction  and  commissioning  (HUCC)  contracts,  and  ii)  an extreme  scenario  where  about  half  of  the  work  orders  related  to  the  contracts  are utilised. Even in a situation where the work orders are halved, from our assumption, Dayang’s TP of MYR2.37  would  still  suggest  a  10%  upside  from  current  levels. Hence, we deem the current selldown to be overdone.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Dayang is primarily involved in the provision of hook-up and commissioning, maintenance services as well as minor fabrication jobs for the oil and gas industry.

Recommendation Chart

Source: RHB