• Keep BUY and MYR2.47 TP, 38% upside and c.2% FY24F yield. 9M23 results came in within expectations, with core earnings surging 29% YoY thanks to better marine contribution. Dayang Enterprise, in our view, will continue to benefit from stronger maintenance activities and robust OSV demand while staying relevant in the new contract cycle round.

• Within expectations. At 95% and 89% of our and consensus full-year estimates, 9M23 core earnings of MYR143m (+29% YoY) are deemed within expectations as we expect 4Q23 to be seasonally weaker due to the monsoon season.

• Results. DEHB’s 3Q23 topline improved by 12% QoQ, largely due to stronger marine utilisation at 80% (2Q23: 72%) that masked offshore topside maintenance (TMS) revenue. In spite of this, core earnings declined by 5% QoQ, largely due to higher depreciation charges and tax expenses. Cumulatively, 9M23 core earnings still strengthened by 29% YoY thanks to the much stronger marine contributions, led by better marine utilisation at 60% (9M22: 57%) and stronger daily charter rates.

• Outlook. DEHB’s outstanding call-out contracts are estimated at MYR950m. We believe the overall marine utilisation this year is on track to achieve 55-60% (9M23: 60%) following an expected seasonally weaker 4Q23. Despite the segmental contribution declining by 10% YoY in 9M23 in the absence of lumpy marine spread (due to a change of vessel chartering contract strategies by clients), margins from offshore TMS improved further, anchored by better rates. We expect maintenance work orders to remain resilient in 2024. We believe the company stands a good chance of winning a portion of the new tender for Petronas’ 5-year hook-up commissioning (HUC) and maintenance, construction and modification (MCM) contracts with another 3+2 years of extension options. We understand that DEHB has submitted the tenders and we expect it to win at least one package of the asset integrity backlog clearance or ABC project, which could be awarded in the near term.

• We maintain our earnings estimates and our TP is kept at MYR2.47, pegged to a 16x FY24F P/E (+2SD from its 5-year mean) and a 6% ESG discount based on the ESG score of 2.7. Such a valuation is to factor in better tender prospects and potential longer tenure for the new round of MCM and HUC contracts.

• Downside risks: Slowdown in new work orders, weaker oil prices, and higher operating costs.

Source: RHB Securities Research - 24 Nov 2023