DAYANG secured work orders for six of its accommodation work boats, but no contract value was announced. We reckon the daily charter rates could range between RM80,000-RM100,000 but deem the win within expectations. Post recent sell-down, the stock appears to be extremely attractive, trading at 9.3x FY24F PER against its 5-year historical average of 11.7x. We maintain our earnings forecasts, TP of RM3.80 and OUTPERFORM call.

DAYANG announced on Bursa Malaysia that it has secured work orders for six of its accommodation work boats, with contract start date ranging from July to August 2024 and durations spanning 61 to 153 days. While no contract value was disclosed, based on our channel checks, four-point mooring work boats with up to 200 pax accommodation capacity could fetch RM80,000-100,000/day. This would amount to revenue of approximately RM58m, assuming an average daily charter rate (DCR) of RM90,000 and an average contract duration of 107 days.

We deem this win within expectations, as we have already factored in upside for DAYANG's vessels, as well as its subsidiary PERDANA (NOT RATED), with projected DCR improvements for both FY24F and FY25F, resulting in expected EPS growth of 37% and 135%, respectively. Additionally, this development helps alleviate near-term concerns over a potential slowdown in upstream maintenance activities in Sarawak following the news of Petronas-PETROS discussions that surfaced in July 2024.

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. Maintained.

Valuations. We maintain TP at RM3.80 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 up-cycle 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 up-cycle. 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' planned capex.

Source: Kenanga Research - 8 Oct 2024