• Keep BUY, new MYR3.58 TP from MYR2.95, 27% upside and c.2% FY24F yield. 1Q24 results surpassed our expectations, with a sturdy turnaround backed by stronger topside maintenance (TMS) work orders and marine contributions. We continue to favour Dayang Enterprise 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.

• A good start. At 16% and 17% of our and consensus’ full-year estimates, 1Q24 core earnings of MYR38m surpassed expectations on both stronger offshore TMS and marine segments.

• Results. DEHB managed to post a turnaround with a core profit of MYR38m in 1Q24 from MYR16m core losses in 1Q23 thanks to stronger marine contributions – led by better charter rates amidst higher utilisation at 48% (1Q23: 26%) and third-party vessel chartering, as well as stronger offshore TMS contributions. QoQ wise, 1Q24 core profit fell by 15% as a result of lower TMS work orders.

• Outlook. DEHB’s outstanding call-out contracts are estimated at MYR1.7bn. We expect maintenance work orders to remain resilient in 2024. We are also positive on its 3-year asset integrity findings or 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 flows are expected from the new tender for Petronas’ 5-year hook-up commissioning (HUC) and maintenance, construction, and modification (MCM) contracts. For the marine segment, DEHB’s 67%-owned Perdana Petroleum (PETR MK, NR) is still aiming to achieve 65-70% vessel utilisation in FY24 and still sees potential improvement in daily charter rates (5-10%) due to tight vessel supply. While most of PETR’s vessels are currently on spot charters, the company is targeting to lock-in some long-term contacts to ensure earnings visibility over a longer period.

• We increase our FY24F-26F earnings by 7-14% on higher contributions from the marine and offshore TMS segments. Hence, our TP is lifted to MYR3.58 after rolling forward our valuation base year to FY25F with an unchanged 16x P/E (+2SD from its 5-year mean) and a 6% ESG discount based on the ESG score of 2.7 vs the 3.0 country median. Such valuation is to factor-in better tender prospects and potential longer tenures 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 - 24 May 2024