• Maintain BUY and MYR2.47 TP (16x FY24F P/E), 47% upside with c.2%FY24F yield. We are positive on Dayang Enterprise’s 3-year Asset IntegrityFindings (AIF) contract win, which could potentially worth up to MYR1.2bn(MYR400m pa) subject to work orders to be issued by Petronas Carigali.Further contract flow is expected from the new tender for Petronas’ 5-yearhook-up commissioning (HUC) and maintenance, construction andmodification (MCM) contracts.

• Bags 3-year AIF contract. Yesterday, Dayang announced that it wasawarded a contract for the provision of rectification works and associatedservices for AIF – Package A – Sarawak Oil Asset (SK Oil) from PetronasCarigali. The contract tenure is for three years, with effect from 15 Dec2023.

• Potentially worth up to MYR1.2bn. This contract win is positive forDayang, as it reflects the company’s position as a reliable maintenanceservices provider. Such a win is also in line with Petronas’ guidance in itsrecent Activity Outlook Report 2024-2026, whereby an average of 300facilities improvement plans (FIPs) pa are to be carried out in the next threeyears including rejuvenation projects, gas generator change-out activities,and other major maintenance activities. This is to sustain the productionvolume and operability of assets, while playing a crucial role in curbingflaring activities at new onshore facilities. Although the value of the contractwill be based on work orders to be issued by the client and will also besubject to the outcome of scoping work to be done, we have been guidedthat it is estimated to be worth up to MYR1.2bn (MYR400m pa). Note thatthese contracts exclude marine spreads and it will not affect the work ordersfrom on-going MCM jobs. We estimate the project margins to be similar tothat of MCM contracts, and lower than the blended operating margin for theoffshore topside maintenance services (TMS) segment, ie at 33% in 9M23.Overall, we expect maintenance work orders to remain resilient in 2024. Webelieve the company stands a good chance of winning a portion of the newtender for Petronas’ 5-year HUC and MCM contracts, with another 3+2years of extension options.

• We maintain our earnings estimates for now. We remain conservative inour estimates, MYR500m expected from this 3-year contract win – since theactual work orders would still subject to the scoping outcome and finalapproval by the client. Our TP stays MYR2.47, pegged to 16x FY24F P/E(+2SD from its 5-year mean) and with a 6% ESG discount imputed, basedon a score of 2.7 as per our in-house proprietary methodology. Downsiderisks: Slowdown in new work orders, softening oil prices, and higheroperating costs

Source: RHB Securities Research - 5 Jan 2024