• Downgrade to NEUTRAL from Buy, new MYR1.38 TP (13x FY24F P/E) from MYR1.73, 5% upside and c.1% FY23F yield. 1Q23 results missed expectations on lower project billings amidst bad weather and project delays resulting from changes in clients’ vessel contracting strategies. Our downgrade is largely premised on greater project delay risks, as project management could be harder for the time being. Project execution timelines can be affected too as they are subject to vessel availability.

• Below expectations. Dayang Enterprises’ 1Q23 results came in below expectations due to a core loss of MYR16m on weaker-than-expected performances from its offshore topside maintenance (TMS) division.

• Results. Dayang slipped into the red with a core loss of MYR16m vs 1Q22 and 4Q22’s MYR9m and MYR4m core profits – dragged by weaker contributions from the offshore TMS division wing. This was the result of lower work orders received during the monsoon season and higher opex. Note: The marine unit also booked an operating loss of MYR22m vs 1Q22 and 4Q22’s MYR19m loss and MYR16m operating profit – no thanks to unexciting vessel utilisation at 26% vs 25% and 54% in 1Q22 and 4Q22.

• Outlook. Dayang’s outstanding call-out contracts are estimated at MYR1.03bn as at 1Q23. Apart from the bad weather affecting its activities, we understand some clients have revised/are revising vessel chartering contract strategies. Instead of embedding vessel charters into their respective maintenance contracts as marine spreads, vessel charters are/will be centralised at their end. With this, project execution timelines are affected as they are subject to vessel availability. Project management could also be harder for the time being. We understand Dayang is currently in discussions with clients to streamline the process. We are guided that three projects have been delayed to 2Q23-3Q23. While there is still an expectation for activities to pick up in 2H23, we see a greater risk of delays, as clients have to manage vessel charters for different projects.

• We cut FY23F-25F earnings by 14-20% after lowering offshore TMS billings due to project delays. Post the earnings cut and rolling forward our valuation base year to FY24, we lower our TP to MYR1.38 – this is pegged to a lower 13x FY24F P/E from 14x and 6% ESG discount based on a revised score of 2.7 from 2.9 previously. Upside risks: A ramp-up in new work orders, much stronger oil prices, and lower operating costs. The opposite represents the downside risks.

• ESG framework update. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a 50% weightage to the E pillar, followed by 25% each to the S and G pillars. See our 2 May thematic research for more details.

Source: RHB Research - 24 May 2023