Daya announced yesterday that its subsidiary Daya OCI (Labuan) Limited has entered into a charter agreement with Siem Offshore Rederi AS (a ship builder company based in Norway) for the managing of a vessel for 5 years with an option to purchase. The delivery of the vessel is expected to be in Dec 2013 and to be named Siem Daya 2 (SD2). Concurrently, it also announced a long-term 3-year charter contract with Technip Norge AS in relation to the appointment of Daya OCI as the manager of the vessel. The estimated value of the contract ranges from RM100m to RM176m for a period of 100 to 175 days per year commencing 2014 with extension option of 4 years (3+4 years). This development is certainly positive, and in line with the strategic plans of Daya in actively being involved in upstream O&G industry.

Awarded with multiple contracts. Recall that Daya had been awarded its first long-term charter contract by Technip worth RM250m to RM440m less than 3 weeks ago by leveraging on its Siem Daya 1. With its second vessel SD2, Daya has now signed another long-term contract with the same client for business operations in the North Sea and North Atlantic Regions. We anticipate the same charter rate of USD105k/day with 3% per annum escalation in price which includes add-on services i.e. dive support and remotely operated vehicle (ROV). We believe the remaining days of the year will be employed on spot basis with higher charter rates by 10% to 20% as standard practice in the market.

Sitting on healthy orderbook. Outlook remains good with outstanding order book worth about RM1.9bn (O&G: RM1.1bn, Trading Services: RM0.8bn). Management has proven to be able to secure O&G orderbook over and above the trading services segment.

Upgrade to Outperform. We maintain our earnings estimates for now as we had factored in this contract into our valuations. We are taking a more cautious stance by assuming lower margins at this juncture due to possible high costs incurred in their first ever foray into managing vessels. Nevertheless, we see a re-rating potential should it secure higher margins on the chartering business. Due to the recent price weakness which has thrown up accumulation opportunities, we therefore upgrade our call to Outperform from Neutral with an unchanged RM0.37 target price pegged to a PE multiple of 12x FY14 EPS of 3.1 sen,

Source: PublicInvest Research - 5 Sep 2013