Wednesday 21 Feb 2024
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This article first appeared in The Edge Malaysia Weekly on November 28, 2022 - December 4, 2022

THINGS seem to be picking up at oil and gas topside maintenance and offshore support service provider Dayang Enterprise Holdings Bhd.

Last Thursday, Dayang’s share price hit a 52-week high of RM1.36, after gaining more than 35% since end-July, buoyed by heavier trading volume. The stock closed at RM1.34 last Thursday, translating into a market capitalisation of RM1.55 billion.

On Nov 11, the Employees Provident Fund (EPF) emerged as a substantial shareholder of Dayang with 5.01% equity interest, or 58.03 million shares. By last Thursday, it had upped its stake to 5.37%, or 62.17 million shares. This is the first time the provident fund has been a substantial shareholder of the company since its flotation exercise in April 2008.

Also in early November, asset management outfit Fidelity International Ltd (FIL) emerged as a substantial shareholder of Dayang with a 5.06% stake, or 58.6 million shares.

These acquisitions by EPF and FIL could result in more funds showing interest in Dayang.

Of the five analysts who cover Dayang, all have “buy” or “outperform” calls. Sean Lim, an oil and gas analyst at RHB Investment Bank Bhd who has a “buy” call on the stock, has this to say about the company: “Dayang has a good track record … prior to the pandemic, it was doing very well. It looks like it is back. It is likely to stand out in the next round of tenders.”

National oil company Petroliam Nasional Bhd (Petronas) could call for tenders for multibillion ringgit worth of maintenance, construction and modification (MCM) contracts next year.

Both Dayang and its 63.71% publicly traded subsidiary, Perdana Petroleum Bhd, which operates a fleet of offshore support vessels (OSVs), are likely to be beneficiaries of these contracts.

Apart from the MCM contracts, there could be a number of integrated hook-up and commissioning (HUC) contracts up for grabs in July next year, which could augur well for Dayang.

To recap, the Petronas MCM contracts dished out in 2018 were slated to expire in September this year but were given an extension to December 2023. According to PublicInvest Research, the terms of the extension were adjusted upwards by about RM50 million to RM60 million per month, or an increase of RM750 million to RM900 million over the extension period.

The research house has an “outperform” call on Dayang. “With robust work orders, we foresee its average utilisation rate to improve to the 75% to 80% level in FY2023,” it said in a report earlier this month.

Dayang is PublicInvest’s top pick in the oil and gas sector. The bank-backed research outfit had a target price of RM1.58 on the stock.

It is noteworthy that Dayang’s 52-week high came about after it announced a sterling set of results. Its net profit for the third quarter increased almost 180% to RM52.9 million, from RM18.98 million a year earlier, while revenue came in at RM338.34 million, up about 51% from the previous corresponding quarter.

For the first nine months of the year, Dayang chalked up a total net profit of RM108.68 million from RM761.89 million in revenue, in contrast to a net loss of RM30.45 million on revenue of 467.58 million in the previous year. The better showing was attributed to increased work orders and contracts, higher vessel utilisation rates and a RM7.4 million insurance claim.

As at end-September, Dayang had cash and cash equivalents of RM294.89 million and reserves of RM583.04 million. On the other side of the balance sheet, it had long-term debt commitments of RM387.62 million and current liabilities of RM102.72 million. The company’s net cash from operating activities as at end-September stood at RM71.92 million.

On its prospects, Dayang says, “We believe the group will be one of the main beneficiaries of additional activities in the MCM and HUC space, by leveraging our strong execution track record.

“As at September 2022, our outstanding estimated call-out contracts was about RM1.58 billion. Going forward, we expect to participate actively in the tender activities as we are of the opinion that our clients will continue to capitalise on the high oil price environment to increase their productivity and profitability.”

In a report released last week, Lim says, “At 122% and 121% of our and the street’s full-year estimates, Dayang’s 9M2022 core earnings of RM111 million came in above expectations due to a better-than-anticipated performance from its offshore topside maintenance and marine units.”

As a result of Dayang’s strong quarterly performance, Lim increased his earnings estimates for FY2022-FY2024 by 3%-28% after imputing better margins for both its marine and offshore topside maintenance service divisions.

“Our target price rises to RM1.58 based on unchanged FY2023F price-earnings multiple of 14 times … We expect earnings growth of 14%-167% in FY2022-FY2024F, led by stronger HUC jobs as well as MCM work orders.”

RHB forecasts a net profit of RM117 million from RM911 million in turnover in FY2022, a net profit of RM133 million from RM992 million in turnover in FY2023, and a net profit of RM157 million from RM1.09 billion in FY2024.

 

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