• Our fair value of MYR1.24 for Dayang Enterprise is based on 14x FY23F P/E, or +2SD from its 5-year mean. Its FY22-23F earnings growth of 47-59% should be led by a pick-up in hook-up and commissioning (HUC) and maintenance, construction and modification (MCM) work orders. Maintenance-related players are likely to recover faster than fabricators, as Petronas is not aggressively expanding greenfield projects, but is instead focusing on low-hanging fruit to boost production

• Pick-up in work orders backed by a solid orderbook. Dayang’s orderbook stands at MYR1.9bn as of end-1Q22, of which Petronas’ MCM and i-HUC contracts contributed c.80%. We are guided that the delayed i- HUC works have commenced at end-1Q22, and MCM work orders are expected to accelerate in 2Q22-3Q22. Meanwhile, Dayang is also tendering MYR800m worth of jobs which could potentially be awarded anytime from now until the end of the year. Despite facing labour shortages, it is working with Petronas and other clients to expedite the work permit approval process and deploy non-Sarawakians as an alternative.

• Margin improvement. Overall margins could improve in 2022-2023, on the back of a better operating environment and the relaxation of quarantine requirements and standard operating procedures. Note that Dayang’s GPM (ex-impairments) was at 12% in 2021, and could possibly return to FY20’s 32% this year. We believe it will take time for its margin to resume to pre- pandemic levels of 40-47% (in 2018-2019), especially when the company is also facing growing pressure in logistic and equipment costs.

• Perdana Petroleum (Perdana) to break even this year. The 63.8%- owned Perdana recorded a vessel utilisation rate of 33% in 1Q22, and we expect it to improve in 2Q22-3Q22. Full-year utilisation is targeted at >60% in 2022 (FY21: 49%). Most vessels are on spot charters, and daily charter rates are improving. Management expects overall OSV demand to pick up, driven by stronger demand for drilling, plug and abandonment (P&A), and underwater services. Note that more than half of Perdana’s vessels will be chartered internally to Dayang to execute the latter’s in-house projects. Therefore, we believe Perdana is likely to return to the black from a core loss of MYR79m in FY21.

• Potential win on project Safina could drive fleet rejuvenation. With an average fleet age of 12 years, Dayang is looking to kickstart its fleet renewal programme this year. Dayang, via Perdana, has participated in Petronas’ Safina project, involving 16 OSV newbuild charter contracts. Dayang is bidding for two landing craft tanks and two anchor-handling tug supply (AHTS). We believe it stands of good chance of winning the project, and is capable of growing its fleet by least 2-4 vessels, as its net gearing was at 0.08x as of 4Q21. Downside risks: Lower work orders from clients, softer oil prices, which could limit clients’ spending, and higher operating costs.

Source: RHB Research - 2 Jun 2022