News

Dayang announced that its subsidiary Dayang Enterprise Sdn Bhd (DESB) has received a letter of award (LOA) from Petronas Carigali Sdn Bhd for the provision of hook up, commission and topside (HUCC) major maintenance services from 2013 to 2018.

Comments

We are positive on the contract award which makes up part of our assumptions detailed in our report titled “High Hopes of Contract Wins” dated 18 Jan 2013. We have already factored in RM4bn win assumptions detailed in our report titled “Power House HUCC” dated 16 May 2013 steaming from our belief that there are even more goodies to come. We understand the contract value is circa RM1.3bn and is the Carigali West package of the HUCC contracts.

So far, Dayang is the big winner from the RM10bn HUCC’s party. To recap, Dayang was awarded RM313.6m by Murphy Sarawak Oil and circa RM2.5bn from Sarawak/Sabah Shell in May 2013 alone. Together with this RM1.3bn contract from Petronas Carigali, Dayang has clinched circa RM4.0bn out of the total RM10bn HUCC contracts.

We believe consensus has only factored in around RM3bn HUCC contact wins for a consensus TP of RM4.75. Hence we expect an upgrade in earnings and TP to reflect the Carigali contract.

The wins to date increased Dayang’s total orderbook to RM5.2bn, translated to ~7x FY13 revenue. This underscores our belief that Dayang is emerging as a power house offshore HUCC player in a region of aging O&G infrastructure (which badly needs upgrading) and massive Capex spending.

Other catalysts; potential entry into marginal fields, improving sentiment, possible regional expansion and the possibility of being a US$1bn market cap stock which would put the company on the radar of more international funds, rerating as a large cap implying a TP of RM9.82 based on our large cap multiple of 20x.

Risks

• Political risk, Delays in contract disbursement, Execution risk.

Forecasts

• Maintained.

Rating

BUY

• Positives –
  • solid track record and expertise in HUC.
  • captive market for topside maintenance.
• Negatives –
  • unsure of international growth prospects.
  • difficulties in sourcing O&G engineering talent.

Valuation

• We maintain our BUY call with an unchanged TP of RM6.87 based on an unchanged 14x FY14 EPS of 49.1 sen/share.

Source: Hong Leong Investment Bank Research - 28 May 2013