KUALA LUMPUR: Dayang Enterprise Holdings Bhd is set to benefit from the five-year contract renewal cycle starting next year.

RHB Research expects Dayang's earnings growth to be about 18–107 per cent in the financial year 2022 (FY22)–24, led by stronger hook-up and commissioning (HUC) and maintenance, construction, and modification (MCM) work orders.

The potential winner of the Safina project could also drive fleet rejuvenation, backed by its strong balance sheet.

"With an average fleet age of 12 years, Dayang is looking to kick-start its fleet renewal programme this year.

"It participated in Petronas' Safina project, involving 16 offshore service vessels (OSV) newbuild charter contracts.

"We believe it stands a good chance of winning the project and is capable of growing its fleet by at least two to four vessels, as its net gearing was at 0.08 times as of the fourth quarter (Q4) of 2021," it said.

As of end-Q2, Dayang's orderbook stood at RM1.7 billion, of which Petronas' MCM and integrated HUC (i-HUC) contracts contributed 76 per cent.

The firm expects i-HUC and MCM work orders to ramp up with higher spending from Petronas and other clients.

"These contracts are due for renewal in FY23, and we see a potential replenishment of RM3.5 billion, aside from current tenders worth RM500 million.

"Dayang has guided that manpower working permits have been largely resolved, with most workers under six-month permits," it noted.

Furthermore, it highlighted that Dayang's overall margins could improve in 2022-2024 on the back of a better operating environment (potential rate revision and higher vessel utilisation) and the relaxation of quarantine requirements and standard operating procedures.

It also added that the 63.7 per cent-owned Perdana's vessel utilisation rate was 47 per cent in the first half of 2022 (1H22) and is expected to improve in 2H22 and 2023.

"The full-year utilisation rate is targeted at more than 50 per cent levels. Most vessels are on spot charters, and daily charter rates are improving.

"Dayang expects overall OSV demand to pick up, driven by stronger demand for drilling, plug and abandonment (P&A), and underwater services.

"We think Perdana will see minimal losses in FY22 from loss of RM79 million in FY21 and deliver a small profit in FY23," it added.

RHB Research initiated company coverage with a 'Buy' call and a target price of RM1.53.