Dayang outperformed both our and consensus expectations due to stronger-than-expected performance in its offshore topside maintenance (TMS) and marine divisions. The group is likely to secure the umbrella contract for topside maintenance from FY25 onwards, which will underpin its robust work order outlook. We increase FY24/25F forecast, raise TP by 15% TP to RM3.80 (from RM3.31). Maintain OUTPERFORM.

Dayang’s 1HFY24 core profit of RM155.1m (after excluding EI of RM4.2m deferred tax gain) outperformed our (64%) and consensus (64%) expectations. The main reason for the outperformance was due to stronger-than-expected work orders for its offshore topside maintenance (TMS) as well as higher-than-expected profit from its marine division. DPS of RM0.03 was declared.

YoY, 1HFY24 revenue rose by 68%, driven by stronger TMS revenue from higher recognition of work orders and increased marine revenue due to higher vessel utilisation (75% vs 50% last year) and improved daily charter rates (DCR). As a result, core profit surged by 230% YoY, with TMS margins improving due to better terms offered for the execution of its topside maintenance jobs.

QoQ, revenue surged by 85% as the group ramped up activities in both the TMS and marine divisions following the monsoon season in 1QFY24. Additionally, we observed gains in EBIT margin for both TMS and marine divisions due to the sequential increase in higher-margin jobs for TMS and better DCR for the marine division, driving a significant leap in core profit.

Outlook. With an order book valued at RM1.4b, the company has more than sufficient runway to sustain its topside maintenance work orders in FY24 which will also mark the tail-end of the yearly extension of its previous umbrella topside maintenance and hook-up & commissioning (HUC) contracts from Petronas and other clients. We believe that the next round of umbrella contracts could be awarded by the end of FY24, and if not, DAYANG is likely to secure extensions for its maintenance works due to the expected high demand.

Forecasts. We revise our FY24/25F earnings by 25/15% after assuming higher topside maintenance work orders and higher work boat DCR of RM97,000/day in FY24F (from RM89,000) and RM104,500 in FY25F (from RM101,000) in line with the industry improvements

Valuations. We increase TP by 15% to RM3.80 (from RM3.31) pegged to an unchanged 13x FY25F PER, which is at a 1x multiple premium to the average forward P/E of 12x of its peers, i.e. PENERGY (Not Rated), DELEUM (Not Rated) and UZMA (Not Rated) during the upcycle in 2014 to reflect DAYANG’s market leader position in the topside maintenance space.

Investment case. We like DAYANG due to: (i) the sustained ramp-up in upstream maintenance activities as well as the anticipated expansion in project margins due to better contract terms secured, (ii) its net cash balance sheet allowing for more potential expansions, and (iii) its marine division (PERDANA, NOT RATED) set to benefit from the boom in OSV upcycle. Maintain OUTPERFORM.

Risks to our call include: (i) significant decline in Brent crude prices, (ii) unexpected vessel downtime due to unplanned maintenance, and (iii) decline in oil producers’ capex planned.

Source: Kenanga Research - 23 Aug 2024