• Keep BUY, new MYR1.73 TP (14x FY23F P/E) from MYR1.58, 12% upside with c.1% FY23F yield. FY22 numbers came in within expectations, with full-year core earnings surging 1.6x to MYR115m. The second interim DPS of 1.5 sen was a pleasant surprise. Despite anticipation of a seasonally weaker 1Q23, we remain upbeat on Dayang Enterprise’s outlook for 2023, premised on the back of robust work orders and better revision rates.

• Within expectations. At 98% and 95% of our and Street’s full-year estimates, FY22 core earnings of MYR115m came in within our expectations due to a better-than-anticipated performance from Dayang’s offshore topside maintenance (TMS) and marine units. A second interim DPS of 1.5 sen was declared.

• Results review. 4Q22 core net profit fell 93% QoQ to MYR4m on seasonally lower work orders during the monsoon season and weaker vessel utilisation (54% vs 3Q22’s 90%). That said, FY22 core earnings still surged by 1.6x to MYR115m on higher topline led by stronger work orders and better marine vessel utilisation (60% vs FY21’s 44%).

• Outlook. Dayang’s outstanding call-out contracts are estimated at MYR1.4bn as at 4Q22. We expect quarterly earnings to remain subdued in 1Q23 as bulk of the mobilisation work will kick-start in March. That said, we expect its maintenance, construction & modification (MCM) work orders to ramp up this year, in accordance with Petronas’ guidance. We also understand there is an upward adjustment in terms of service rates to cater for rising material and equipment costs, as well as costs of doing business. We believe there could be a restructuring of MCM and hook-up & commissioning or HUC contract structures, but think Dayang is still set to benefit from the 5-year contracts renewal cycle. Overall, we still expect margins to widen in FY23 following the rate revisions. Additionally, the group is also aiming for better FY23 marine vessel utilisation at 65% vs FY22’s 60%.

• We increase FY23F-24F earnings by 3-9% after imputing better contributions from both the marine and offshore TMS divisions. Our new MYR1.73 TP is based on an unchanged 14x FY23F P/E or +1SD from the 5-year mean. There is also a 2% ESG discount applied as per our in-house proprietary methodology. Note: Our earnings forecast assumes no Cukai Makmur being levied in FY23, which will bring down Dayang’s effective tax rate from FY22’s 36% to the mid-20s.

• Downside risks: A decline in new work orders, softer oil prices (which could limit clients’ spending), and higher operating costs.

Source: RHB Research - 17 Feb 2023