Dayang’s 1Q15 core profit of MYR34m was in line. Maintain BUY and a TP of MYR3.40 (42% upside). Contributions from the higher-value Bardegg Baronia job offset seasonally weak topside maintenance activity and lower utilisation from its associate. We like the premium HUC player, which is driven by a MYR3.8bn orderbook, while it makes an effort to protect its margins via cost-cutting measures.

• 1Q is a seasonally weak quarter. Dayang Enterprise’s (Dayang) core profit of MYR34m (at 18% of our/consensus estimates) is in line with our expectation. This trend was similar to its 1Q12/1Q13/1Q14 core profit, which comprised 16%/21%/19% of its full-year core earnings. Revenue from its hook-up and commissioning (HUC) and offshore topside maintenance services, at MYR188m, was slightly above 1Q14’s but below the quarterly average of MYR215m in FY14 – as weather conditions affect activities typically at the start and end of the year. Group revenue rose 7% YoY due to work orders taken and done for the new Bardegg Baronia job (awarded in Nov 2014). The higher-value work orders also resulted in a higher profit margin, which subsequently liftedgroup PBT (excluding associate results) by 12% YoY or 32% QoQ.
• Plans to acquire a key associate. The resilient earnings were offset slightly by a 40% decline in associate income (5% of group PBT) from Perdana Petroleum (Perdana) (PETR MK, NEUTRAL, TP: MYR1.55) arising from lower utilisation. However, we understand that some of the vessels that were off-hired are now at work. Dayang’s stake in Perdana was 29.9% as at end-March 2015, vs 28.6% in FY14. Currently, its stake is 32.7%. Earlier this month, Dayang had launched a mandatory general offer to acquire the remainder of Perdana shares at MYR1.55/share.
• Maintain BUY with a MYR3.40 TP (14x FY15F P/E) as we retain our earnings forecasts. We like its size as a premium HUC player and longterm earnings visibility until 2018. Dayang estimated its call-out contracts are driven by its MYR3.8bn orderbook, with an outstanding tenderbook of MYR800m. We expect its plans to acquire Perdana to be synergistic and the outcome could propel it to become an integrated services provider. Another re-rating catalyst would be it successfully implementing various cost-cutting initiatives, and becoming a leading listed O&G player making an effort to protect margins during the current industry slowdown.