• Keep BUY with a higher MYR1.83 TP (derived from 15x FY24F P/E) from MYR1.60, c.17% upside and c.2% FY23F yield. 1H23 results surpassed our expectations on better marine contribution and margins. We expect earnings to remain resilient in 2H23 backed by robust work orders and better vessel utilisation. Dayang Enterprise stands a good chance to win a portion of the newly-tendered asset integrity backlog clearance (ABC) project which could be awarded by 4Q23.

• Above expectations. At 56%/52% of our/consensus’ full year estimates, 1H23 core earnings of MYR66m (+20% YoY) came in above expectations due to better than expected margins and marine contribution.

• Results. From a core loss of MYR16m in 1Q23, Dayang reverted to a core profit of MYR82m in 2Q23, due to seasonally-stronger offshore topside maintenance (TMS) and marine divisions. YoY in 2Q23 core earnings improved 80% on the back of stronger performance from both divisions. The marine unit booked an operating profit of MYR33m (1Q23: MYR22m loss, 2Q22: MYR5m profit) – thanks to better vessel utilisation at 72% vs 26% and 66% in 1Q23 and 2Q22 and improved daily charter rates.

• Outlook. Dayang’s outstanding call-out contracts are estimated at MYR1.2bn. We believe the overall marine utilisation this year is on track to achieve 55-60% (1H23: 49%), which suggest an overall better utilisation in 2H23. Meanwhile, margin from offshore TMS is likely to improve with better revised rates as well as lower lumpy marine spread due to a change of vessel chartering contract strategies by clients. We expect work orders to remain resilient in 3Q23 before tapering off in 4Q23 amidst monsoon season. Dayang stands a good chance to win a portion of the newly tendered ABC project which could be awarded by 4Q23. Recall that Dayang submitted a portion of this 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 a total contract value of MYR4.0bn - 5.0bn. For the rest of maintenance, construction & modification (MCM) and hook-up & commissioning (HUC) contracts that are expiring at the end of 2024, we believe the bidding would start in 1H24.

• We increase FY23F-25F earnings by 12-14% after increasing marine earnings contribution and better offshore TMS margins. Post the earnings adjustments, our TP is lifted to MYR1.83 – this is pegged to an unchanged 15x FY24F P/E and a 6% ESG discount based on a score of 2.7. We continue to like Dayang for its better tender prospects and lower project delay risks, as Dayang is able to achieve resolutions with the clients following the change in vessel chartering model.

• Upside risks: A ramp-up in new work orders, much stronger oil prices, and lower operating costs. The opposite represents downside risks.

Source: RHB Securities Research - 25 Aug 2023