RHB Research (RHB) upgrade on Dayang Enterprise (Dayang) is premised on lower project delay risks, as Dayang is able to achieve resolutions with clients.
“We expect earnings to pick up sequentially in 2Q-3Q23 backed by seasonally stronger work orders and vessel utilisation. Dayang stands a good chance to win a portion of the newly tendered asset integrity backlog clearance (ABC) project which could be awarded by 4Q23,” said RHB in the recent Malaysia Company Update Report.
Following the discussion with clients, Dayang guided that sufficient notice would be given whenever there is a vessel shortage and Dayang is allowed to source its own vessel with a minimal management charged to client. This would resolve the vessel availability issue.
The three delayed projects were scheduled to kick start this year: one in May and two in August. With the issue being resolved, RHB sees lesser project delay risk and expects Dayang’s work orders to pick up sequentially in 2Q-3Q23.
“Marine charter segment wise, we understand that utilisation could reach 70% in 2Q23 and potentially hit 80% in 3Q23. Full year vessel utilisation guidance remains unchanged at 60-65% while the daily charter rate was increased 7-10% on average YoY,” said RHB.
Dayang submitted a new tender on ABC project which involves inspection, job-scoping, and quick fix on the existing platforms across Malaysia. It is a three-year contract with five packages available and total contract value of RM4-5bn.
RHB understands that Dayang participated in the tenders process and the contract award will be known by 4Q23. Also Dayang has been farmed in some ad-hoc works starting from August to December this year with monthly work orders of RM15-20m.
Assuming Dayang secures one package worth RM1.0bn, this could translate into an additional RM300m in revenue. Dayang secured a contract extension until the end of 2024 for ROC Oil (Sarawak) SB’s procurement, construction, installation, hook-up, and commissioning services job.
There is a possibility that MCM contracts will be extended to end-2024 and a new tender will happen by mid of next year for both MCM and i-HUC contracts.
RHB maintains their earnings estimate as they have yet to factor in any project win for the ABC tender. Target price has been increased to RM1.60.
Such valuation is to factor in a better tender prospect and lower project delay risks, as Dayang is able to achieve resolutions with the clients following the change in vessel chartering model.
Downside risks are the slow-down in new work orders, weaker oil prices, and higher operating costs.
