Results

In line: 1Q13 core PATAMI increased 63% yoy to RM25.6m, making up 17% and 18% of HLIB and consensus full-year estimates, respectively.

Deviations

We expect contract mobilisation of HUCC detailed in our report date 20 May 2013 to accelerate earnings in subsequent quarters. Coupled with monsoon season in 1Q, we considered the results to be in line.

Dividends

None.

Highlights

1Q13 Revenue increased 18% yoy due to higher utilisation of vessels and higher work orders received. The 63% increase in core profit was due to higher contribution from the fatter margin marine charter business and RM1.3m contribution from associate Perdana (BUY).

The RM33m extraordinary gain from the investment in Perdana (BUY) as they passed the 20% ownership (currently 26%) threshold for equity accounting in Feb 2013 is consistent with our report titled “Strategic Maestro” dated 20 May 2013 where we opined that Dayang’s acquisition of associate Perdana (BUY) at ‘pennies on the dollar’ (last close RM1.89) show cases the company’s excellent foresight and strategic prowess. Securing marine assets cheaply at a time when demand was weak. Channel checks indicate it is now extremely difficult to secure vessels and as the HUCCs mobilise, we expect demand to tighten further.

Other catalysts: potential entry into marginal fields, improving sentiment, possible regional expansion and the possibility of being a US$1bn market cap stock which would put it on the radar of more international funds and may cause the market to rate the company at our large cap PE of 20x (vs. 14x current ascribed value of RM6.87) which implies a TP of RM9.82, or additional 105% upside from our current TP.

Risks

• Political risk; Delays in contract disbursement; and Execution risk.

Forecasts

• Maintained.

Rating

BUY

• Positives – solid track record and expertise in HUC, captive market for topside maintenance.
• Negatives – unsure of international growth prospects, difficulties in sourcing O&G engineering talent.

Valuation

We maintain our BUY call with an unchanged TP of RM6.87 based on an unchanged 14x FY14 EPS of 49.1 sen/share. As detailed in our report dated 22 May 2013 titled “Yes, More Sweets to Come”, we expect additional contract wins and continued rerating. We reiterate that recent price weakness due to ‘selling on news’ is an opportunity to BUY.

Source: Hong Leong Investment Bank Research - 23 May 2013