Dayang Enterprise Holdings Bhd
(Sept 4, RM1.42)
Maintain market perform with an unchanged target price (TP) of RM1.45: Dayang Enterprise Holdings Bhd announced that it was awarded a contract for the provision of hook-up, commissioning and topside major maintenance services for Petronas Carigali Sdn Bhd. The duration of the contract is for a period of 15 months, effective from Aug 16, 2019 and will expire on Nov 15, 2020.

While no value or other contract details were included in the announcement, we guesstimate the contract value to be somewhere within the region of RM100 million to RM200 million. Of course, actual contract value would depend on the work orders received. We believe the contract would be able to fetch earnings before interest and tax margins at around the mid-teens region. With this contract, we expect Dayang’s order book to remain more than RM3 billion, bringing the year-to-date new contract wins to an estimated value of RM450 million to RM600 million (still well within our replenishment assumption of RM1 billion).

We also posit that the contract could possibly serve as an “interim” contract while a possible retendering of Petronas Carigali’s integrated hook-up and commissioning contract is underway, as reported in the press. Nonetheless, we are positive on the win as it highlights the company’s job delivery capabilities, thus enabling its clients’ confidence in awarding Dayang work contracts.

We maintain “market perform”, with an unchanged sum-of-parts TP of RM1.45. Note that our TP has already taken into account the full share-base dilution from the proposed corporate exercises (approximately 20% dilution). Our TP, which implies a forward price to book value of 1.4 times, is already priced near +1 standard deviation premium against its five-year mean. No changes are made to our earnings for the estimated financial years 2019 to 2020 numbers.

Risks to our call include: i) greater-than-expected work orders; ii) higher-than-expected vessel utilisation; iii) stronger-than expected margins; and iv) falling through of corporate exercises. — Kenanga Research, Sept 4