KUALA LUMPUR (Aug 24): Shares of Dayang Enterprise Holdings Bhd continued to rally on Thursday (Aug 24), closing at RM1.57 — the highest since its closing price of RM2.08 on March 6, 2020 — as its business performance rebounded strongly as reflected in its second quarter ended June 30, 2023 (2QFY2023).

The counter hovered between RM1.52 and RM1.58 before settling at RM1.57, which was six sen or 3.97% higher than Wednesday's close and valuing the group at RM1.82 billion. 

While Dayang Enterprise saw some gains, its total trading volume of 8.77 million on Thursday was lesser than its 64%-owned subsidiary Perdana Petroleum Bhd.

Perdana Petroleum saw some 98.29 million shares changing hands and became the third-most actively traded stock on Bursa Malaysia. 

Its shares dropped two sen or 8.51% to 21.5 sen, after closing at a near three-and-a-half-year high at 24 sen on Wednesday, following the group's strong 2QFY2023 performance. 

At 21.5 sen, Perdana Petroleum's share price was at its highest since Aug 11, 2020, giving it a market capitalisation of RM486.08 million.

Year to date, Dayang Enterprise's share price has been on the climb since May 29, when it closed at RM1.15. In the past year, the counter has surged 42.73%, from RM1.10.  

Perdana Petroleum, on the other hand, closed between 16 sen and 21 sen in the past six months, before it experienced a sudden spike to 24 sen on Wednesday, most likely as a reaction to its positive financial results.

Two days ago, Perdana Petroleum announced that it has returned to the black for 2QFY2023 with a net profit of RM8.65 million, as revenue jumped 89% year-on-year and 175% quarter-on-quarter to RM81.64 million, driven by higher vessel utilisation and charter rates.

In a note released early Thursday morning, CGS-CIMB Research said Dayang Enterprise’s earnings for the financial year ending Dec 31, 2023 (FY2023) may pleasantly surprise investors, due to Perdana Petroleum’s strong performance in 2QFY2023.

The research house said Dayang Enterprise also sees a healthy outlook for its second half of 2023 (2H2023) as the integrated oil and gas (O&G) service provider saw a successful tender for the asset integrity backlog clearance (ABC) contract and better-than-expected margins for its core operations.

Therefore, CGS-CIMB highlighted Dayang Enterprise as one of its top picks in the O&G sector and broader market. The firm reiterated an “add” call on  Dayang Enterprise’s stocks and maintained its target price of RM1.70 calculated through the Gordon growth model.

“Management expects vessel utilisation rate to improve further to about 80% in 3QFY2023 before normalising to circa 60% in 4QFY2023 as the monsoon season sets in,” CGS-CIMB said, indicating the sustained strength in Perdana Petroleum’s operations.

Besides that, it highlighted Dayang Enterprise's slew of contract extensions for its existing core operations since mid-July, with unit rates being 20% to 25% higher than in the initial firm period for these long-term contracts that were clinched in 2018.

“We are encouraged by the higher rates that have been locked in, as it bodes well for margins moving forward. In July, Dayang Enterprise submitted bids for the ABC tender worth an estimated RM4 billion to RM5 billion, with awards slated for year-end,” CGS-CIMB said.

The ABC contract is for a period of four years, commencing January 2024, and comprises an aggregation of orders for previously deferred offshore maintenance and rectification works due to spending cuts by oil majors during the oil market rout.

Given the urgency to catch up with previously delayed works, Dayang Enterprise has been awarded farm-in jobs for the Sarawak portion, for scoping and repair works commencing August to December 2023.

CGS-CIMB forecasts that the interim farm-in from the ABC contract should add incrementally to Dayang Enterprise’s revenues from August 2023 onwards.  

In May, Dayang Enterprise announced that it had fallen into the red in 1QFY2023, posting a net loss of RM15.95 million compared with a net profit of RM13.76 million a year ago. Revenue for the quarter slumped 29.8% to RM112.42 million from RM160.14 million, due to fewer work contracts being awarded and lower vessel utilisation.

“Following a disappointing 1QFY2023, Dayang Enterprise’s earnings look set for a strong rebound from 2QFY2023 onwards as the teething issues from a change in contracting strategies by its client have been largely resolved,” CGS-CIMB said.

CGS-CIMB's comment was proven right as Dayang Enterprise released its 2QFY2023 performance Thursday evening, which saw its net profit soar 54% year-on-year (y-o-y) to RM64.69 million — the highest since its 4QFY2019 result oft RM78.23 million. Revenue also rose 16% y-o-y to RM305.73 million. 

A check on Bloomberg showed that Dayang Enterprise’s largest shareholder is construction engineering company Naim Holdings Bhd with a 24.22% stake, while its second largest shareholder is Dayang Enterprise founder and deputy chairman Datuk Ling Suk Kiong with a 7.22% stake.

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