DAYANG has secured two more Pan Malaysia package (or MCM and HUC) from SSB/SSPC. The award, estimated at RM3b for its firm period, aligns with expectations, with projected margins around 20% due to heightened competition, contributing approximately RM120m in net profit per year. Despite potentially lower project margins, DAYANG's overall profitability should remain strong, supported by its RM5.2b order book with favourable terms. The stock is attractively valued at 8.4x FY24F PER, below its 5-year average of 11.7x. We maintain our forecast and TP of RM3.80 and OUTPERFORM call.

DAYANG announced via Bursa Malaysia that it has secured contracts from PETRONAS Carigali Sdn Bhd for the provision of Pan-Malaysia Offshore Maintenance, Construction, and Modification (MCM) as well as Hook-Up and Commissioning (HUC) services. The contracts cover Package A3 (Sarawak Asset - SKA Oil) and Package A5 (Sabah Asset - SBA Southern), with both packages commencing in late September 2024. These contracts have a firm tenure of five years and include extension options in two phases: one term of three years and another of two years. This results in more revenue visibility of the group in the next five years as the group was on shorter term (one-year) extensions in FY22 and FY23.

Although no official contract value was disclosed, we estimate that the firm-period value for both packages could reach up to RM3b. With a conservative net margin assumption of 20%, this could translate to an annual PAT of approximately RM120m which is in our forecast. The contract win aligns with our expectations, as we had already forecasted a record-high PAT for FY25. This projection is supported by DAYANG's RM1.2b asset integrity backlog clearance project and the early ramp-up of its recently secured three packages for Pan-Malaysia MCM and HUC works

Outlook. With an order book valued at RM5.2b, 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 as its existing work orders still command high margin and its OSV arm, PERDANA (NOT RATED) is still expected to see an uptrend in margins due to the strength in the local OSV market.

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 2014 up-cycle 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 - 14 Nov 2024