Incoming Pan Malaysia contracts

The Edge reported that Petronas is nearing the award of 15 maintenance, construction, and modification (MCM) packages, with an estimated value of RM8-10bn. The contract will be for 5 firm years, with options to renew for an additional 3+2 years. It has been noted that Dayang is among the biggest winners, securing three packages with an estimated average package size of c.RM500m. However, we believe the total value of Dayang’s 3 packages could be higher at c.RM2bn, particularly if it secures the Sarawak packages, given its status as the incumbent for the Sarawak Oil package back in 2017. This round of MCM packages excludes the vessel portion, resulting in larger overall service package sizes than in 2017. We understand that service rates for the new 5-year contract are expected to be 20-25% higher than the MCM contracts secured in 2017. As a result, we expect margins to exceed the previous 30% net profit margin. The hook-up and commissioning (HUC) portion would be divided into 3 packages, which should be awarded soon.

More opportunities ahead

We expect Dayang to deliver stronger results in 3Q24, as this is seasonally its strongest quarter, driven by higher work orders and increased vessel utilisation rates. We understand that Dayang plans to bid for new offshore platform decommissioning tenders, which will be split into 3 packages covering Peninsular, Sarawak, and Sabah. Similar to the HUC/MCM work scope, Sarawak offers the largest contract value due to the region's higher number of large offshore platforms. We believe Dayang stands a strong chance of securing the Sarawak package as the region's incumbent player. The contract is expected to be awarded in 3Q25, with work slated to commence in 2026.

Reiterate BUY with RM4.50 target price

We are encouraged by the upcoming MCM packages to be awarded by Petronas, which are expected to feature higher rates and drive Dayang’s earnings and margins moving forward. Dayang is trading at an attractive 9x 2025 PE, supported by strong growth prospects. We reiterate our BUY rating and RM4.50 target price based on an unchanged 16x PE multiple on 2025E EPS. Key risks to our BUY call include contract awards and work order delays.

Source: Philip Capital Research - 15 Oct 2024