Premised on its estimated FY14/15 earnings growth of 86%/18%, Daya Materials (Daya) remains one of our favourite small-cap oil & gas (O&G) picks, especially given its growing O&G division. We raise our FY14/15 forecasts by 13%/29% to reflect better profitability for its technical services (TS) business. Maintain BUY, with a new MYR0.48 FV (from MYR0.42), pegged to an unchanged 15x target FY14 P/E.
Time for execution. Daya’s two offshore support construction vessels (OSCVs) – Siem Daya 1 (SD1) and Siem Daya 2 (SD2) – will officially begin their North Sea works with Technip Norge AS (Technip Norge) by end-February. Each vessel will be deployed for a period of 220-250 days/contracted year. We project 230 days for North Sea deployment and 30 days for spot charters for each vessel.
51% stake acquisition of SD2 still on track. Daya’s planned acquisition of a 51% stake in SD2, which will cut related costs by around 25%, is targeted to be completed by 1H14. Our calculations suggest that the acquisition will bump up FY14/15 earnings estimates by 2-4%/4-8%.
A third vessel by 4Q14 possible. Daya is negotiating for another vessel chartering contract with Technip Norge involving a similar vessel as SD1 and SD2. We believe the third vessel’s contract arrangement with Siem Offshore (SIOFF NO, NR) could be similar to SD2’s and ultimately lead to Daya acquiring a 51% stake.
Management’s careful selection. Daya’s technical services (TS) division did not fare well in 3Q13 due to lower project profitability margins. Management said TS showed improvement in 4Q13 and reaffirmed its more selective stance on future projects
Maintain BUY, higher MYR0.48 FV. Daya remains one of our favourite small-cap O&G picks, premised on its FY14/15F earnings growth of 86%/18%, driven by significant contributions from its O&G division. We revise our FY14/15 forecasts by 13%/29% to reflect better profitability in its TS business. Maintain BUY, with a new MYR0.48 FV (from MYR0.42), pegged to an unchanged 15x target FY14 P/E, which is on par with other small- to mid-cap O&G companies within our coverage universe.
Both SD1 and SD2 OSCVs will officially begin their North Sea works – under respective long-term contracts with Technip Norge – by end-February. Each vessel will be deployed for a 220-250 days/contracted year period, following SD1’s testimonial 1-month stint with the leading subsea engineering contractor on the Norwegian continental shelf in Nov 2013.
Briefly on contract terms.
SD1 is on a 5-year charter contract with a 2-year extension option, while its sister vessel is on a 3-year contract with a 4-year extension option. Both OSCVs were originally slated for a 100-175 days/year deployment to the North Sea. However, the terms were changed following Daya’s successful deployment of SD1 in Nov 2013.
We understand from management that both OSCVs will fetch daily charter rates (DCR) of USD103,300 with an agreed escalation rate of 3% every year. Both vessels are chartered from Siem Offshore. Both SD1 and SD2 are currently being chartered from Siem Offshore for seven years.
This matches Daya’s commitment to Technip Norge. Both contracts entail a bareboat charter rate of USD65,300 each plus a similar escalation rate of 3% annually. SD1 and SD2 are also equipped with two remotely operated vehicles (ROVs) each. A single ROV has a charter rate of approximately USD10,000/day.
We are assuming that each vessel will be deployed to the North Sea for 230 days and will have an estimated 30 days for spot charters every year. Daya said the OSCVs can fetch a DCR of USD119,000/day/vessel if contracted on a spot basis. This arrangement implies an average DCR of USD105,100/day/vessel. Included in our numbers are: i) a total mobilisation period of 40 days to the two locations, and ii) 65 days of downtime as guided by management.
What if Technip Norge requires the vessels for 300 days?
According to management, Technip Norge was negotiating for a longer charter of 300 days. The weighted average DCR will then be lower, at USD103,300/day/vessel if the OSCVs are deployed to the North Sea under such an arrangement. This also means that the SD1 and SD2 will not be able to undertake any spot charter contracts, as we believe the remaining 65 days/year window is too short for such opportunities
A combination of spot and long-term charters is, indeed,
more lucrative. It also gives Daya the opportunity to build its track record and expertise by working with different parties that may have varied job requirements – a proposition that management prefers.
Yet, we cannot ignore the fact that a longer locked-in period of 300 days vs 230 days with Technip Norge provides greater earnings visibility.
It eases the risk that the OSCVs may lie idle longer than expected in port, which, in turn, can result in operating costs with no matching chartering revenue.
The planned acquisition of a 51% stake in SD2 is targeted for completion by 1H14. According to management, owning a 51% stake in a vessel helps to reduce related costs by approximately 25%. Hence, our calculations suggest that the stake acquisition may bump up FY14 and FY15 earnings estimates by 2-4% and 4-8% respectively.
The initial outright acquisition cost for the SD2 was said to be USD120m but, with upgrades done by Siem Offshore to increase the OSCV’s power supply capacity, it may now cost USD132m.
The 51% stake acquisition will be financed via 25% equity and 75% debt, and we understand that part of the proceeds from Daya’s recent 10% placement may be utilised to partly fund the acquisition costs.
We understood that Daya is negotiating for another vessel chartering contract with Technip Norge, which will involve a similar type of vessel to SD1 and SD2.
If successful, this third OSCV will again be chartered from Siem Offshore and is the latter’s last vessel built to this specification.
We believe the contract arrangement for the third OSCV could be somewhat similar to SD2’s and may ultimately lead to Daya acquiring a 51% stake.
Although nothing has been confirmed at this current juncture, management said that any further acquisition could be funded via a combination of rights issuance and bonds.
Daya’s careful selection. The group’s second-largest contributor, the TS division,
did not fare well in 3Q13 as it was dogged mainly by lower project profitability margins. This business historically records PBT margins between 4-11% but this deteriorated sharply to approximately 3% in both 2Q13 and 3Q13.
Management said TS did show improvement in 4Q13 and reaffirms its stance to be more selective on future projects that it undertakes.
Although we are comforted by Daya’s commitment, we still cautiously assume a conservative 6% PBT margin to this division throughout FY14-15.
The group’s orderbook currently stands at approximately MYR1bn and we expect these existing projects to continue until FY16.
( Latest : DAYA's current order books stand at RM2.1 bil )
Daya CMT SB offers design, engineering, construction, project management and maintenance services for commercial and industrial buildings under the TS division.
Daya Clarimax SB, on the other hand, provides: i) ISO tank cleaning, repair and maintenance (R&M) services; ii) waste solvents recycling; and iii) the manufacturing of high purity electronics and technical solvents
crucial week for daya, if we see daya goes up these few days, we can expect an outstanding quarter report or else... Tressury shares sold, and the consideration is recorded in other income?
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Posted by Foresight123 > 2014-02-21 17:16 | Report Abuse
Wokay thx