• Keep BUY and new MYR2.95 TP from MYR2.47, 32% upside and c.2% FY24F yield. Dayang Enterprise’s FY23 results surpassed expectations, with core earnings surging 68% YoY thanks to stronger topside maintenance work orders and marine contribution. We continue to favour the stock for being a key beneficiary of a step-up in upstream maintenance activities and robust OSV demand while staying relevant in the new contract lifecycle.

• Strong beat. At 124% and 115% of ours and consensus’ full-year estimates, FY23 core earnings of MYR188m (+68% YoY) surpassed expectations on both stronger offshore topside maintenance (TMS) and marine segments. A final DPS of 3 sen was declared, lifting full-year DPS to 4.5 sen (FY22: 3 sen).

• Results. Despite the monsoon season, DEHB’s 4Q23 topline improved 15% QoQ, largely due to stronger topside maintenance work orders and higher daily charter rates. That said, core earnings still fell 45% QoQ due to weaker marine division (after stripping off MYR42m of property, plant, and equipment (PPE) impairment reversal) and higher tax expenses. Cumulatively, FY23 core earnings still strengthened 68% YoY, thanks to stronger marine contributions – led by better charter rates amidst lower utilisation at 58% (FY22: 60%) – and stronger offshore TMS contribution.

• Outlook. DEHB’s outstanding call-out contracts are estimated at MYR1.9bn. We expect maintenance work orders to remain resilient in 2024. We are positive on its 3-year Asset Integrity Findings (AIF) contract win, which could potentially be 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-year hook-up commissioning (HUC) and maintenance, construction, and modification (MCM) contracts. For marine segment, its 67%-owned Perdana Petroleum is aiming to achieve 65-70% vessel utilisation in FY24 and still sees potential improvement in daily charter rates due to tight vessel supply. While most of Perdana’s vessels are currently on spot charter, the company is targeting to lock-in some long-term contacts to ensure long-term earnings visibility.

• We increase our FY24-25 earnings estimates by 19-20% on higher contribution from marine and offshore TMS segments. Hence, our TP is lifted to MYR2.95, 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 Research - 23 Feb 2024