• U/G to BUY from Neutral, with a higher MYR1.60 TP (15x FY24F P/E) from MYR1.38, 16% upside and c.2% FY24F yield. Our upgrade is premised on lower project delay risks, as Dayang Enterprise is able to achieve resolutions with clients. We expect earnings to pick up sequentially in 2Q-3Q23 backed by seasonally stronger work orders and vessel utilisation. Dayang stands a good chance to win a portion of the newly tendered asset integrity backlog clearance (ABC) project which could be awarded by 4Q23.

• Better vessel visibility. Following the discussion with clients, Dayang guided that sufficient notice would be given whenever there is a vessel shortage and Dayang is allowed to source its own vessel with a minimal management charged to client; this would resolve the vessel availability issue. The three delayed projects were scheduled to kick start this year: one in May and two in August. With the issue being resolved, we see lesser project delay risk and expect Dayang’s work orders to pick up sequentially in 2Q-3Q23. Marine charter segment wise, we understand that utilisation could reach 70% in 2Q23 (26% in 1Q23) and potentially hit 80% in 3Q23. Full year vessel utilisation guidance remains unchanged at 60-65% while the daily charter rate was increased 7-10% on average YoY.

• ABC tenders. Dayang submitted a new tender on ABC project which involves inspection, job-scoping, and quick fix on the existing platforms across Malaysia. It is a three-year contract with five packages available and total contract value of MYR4-5bn. We understand that Dayang participated in the tenders process and the contract award will be known by 4Q23. Also Dayang has been farmed in some ad-hoc works starting from August to December this year with monthly work orders of MYR15-20m. Assuming Dayang secures one package worth MYR1.0bn, this could translate into an additional MYR300m in revenue (c.30% of our FY24F estimates). Dayang secured a contract extension until the end of 2024 for ROC Oil (Sarawak) SB’s procurement, construction, installation, hook-up, and commissioning services job. There is a possibility that MCM contracts to be extended to end-2024 and a new tender will happen by mid of next year for both MCM and i-HUC contracts.

• Upgrade to BUY. We maintain our earnings estimate as we have yet to factor in any project win for the ABC tender. We increase our TP to MYR1.60, pegged to a higher 15x FY24F P/E (+1.5SD from its 5-year mean) from 13x and a 6% ESG discount based on a score of 2.7. Such valuation is to factor in a better tender prospect and lower project delay risks, as Dayang is able to achieve resolutions with the clients following the change in vessel chartering model. Downside risks: a slow-down in new work orders, weaker oil prices, and higher operating costs.

Source: RHB Research - 14 Jul 2023