• Keep BUY, new MYR3.90 TP from MYR3.58, 50% upside with c.2% FY24F yield. Dayang Enterprise delivered another strong set of results for 1H24, thanks to stronger topside maintenance (TMS) work orders and marine segment contributions. We continue to like the stock – the firm is a key beneficiary of a step-up in upstream maintenance activities and robust OSV demand, while staying relevant in the new contract lifecycle.

• A strong quarter. At 67% and 68% of our and consensus full-year estimates, 1H24 core earnings of MYR168m surpassed expectations due to the stronger offshore TMS and marine segments. A first interim DPS of 3 sen was declared.

• Results. DEHB delivered core profit of MYR129m (+2.4x QoQ, +58% YoY) on stronger marine contributions – led by better charter rates amidst a higher utilisation of 91% (1Q24: 48%; 2Q23: 72%) and third-party vessel chartering, as well as stronger offshore TMS contributions. Cumulatively, 1H24 core profit also surged 1.6x to MYR168m on the stronger contributions from both segments.

• Outlook. DEHB’s outstanding call-out contracts are estimated at MYR1.4bn. We expect maintenance work orders to be sustained in 3Q24, before tapering off in 4Q24. We also expect higher work orders to be called by Petronas Carigali (PCSB) from its 3-year asset integrity findings or AIF contract. 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 subsidiary, DESB Marine Services, has been one of PSCB’s panel of contractors for OSV services over the next three years. Meanwhile, 64%- owned Perdana Petroleum (PETR MK, NR) could achieve a utilisation rate of >70% (1H24: 75%) in FY24 and still see a potential improvement in daily charter rates (5-10%) due to tight vessel supply. The company is targeting to lock in half of its 15 vessels on long-term contacts to ensure earnings visibility over a longer period.

• We increase our FY24-26F earnings by 24%, 16% and 18% on higher contributions from the marine and offshore TMS segments. Hence, our TP rises to MYR3.90, pegged to lower 15x P/E (above +1.5SD from its 5-year mean) and with a 6% ESG discount built in, based on DEHB’s ESG score of 2.7 vs the 3.0 country median. Our valuation also factors in a moderation in earnings growth beyond FY25F. Downside risks: Slowdown in new work orders, weaker oil prices, and higher operating costs.

Source: RHB Research - 23 Aug 2024