KUALA LUMPUR (April 11): Hong Leong Investment Bank Bhd (HLIB) has upgraded Dayang Enterprise Holdings Bhd to 'buy' from 'hold' as the research house expects the oil and gas services provider to post a stronger performance for its current financial year ending Dec 31, 2017 (FY17).

HLIB analyst Lim Sin Kiat said Dayang's better performance will be backed by higher hook up and commissioning (HUC) and topside maintenance orders — amid better crude oil prices — and higher utilisation rates of Perdana Petroleum Bhd's vessels.

"In 2017, its HUC work orders will improve as it is sitting on RM2 billion orderbook. In addition, the group may potentially secure a share of Petronas maintenance contracts (MCM) and Pan Malaysia packages, which will be awarded this year," wrote Lim in a note today.

He noted the company had a bad year in FY16 due to the weak oil prices, higher interest cost from Perdana's debt consolidation and losses from the vessel business.

Despite that, the HUC segment reported decent numbers with core pre-tax profit at RM64.7 million, after excluding Perdana's losses of RM42.8 million.

"Therefore, we revisit Dayang's valuations and opine that sum-of-parts is a better valuation methodology for the group due to its two separate business natures," said the analyst.

The research house values the company's core HUC and topside maintenance business at RM1.03 per share, translating to 12 times price-earnings ratio to the segment's FY17 profit after tax.

Meanwhile, the offshore support vessel business under Perdana is valued based on 0.5 times to book value of 77 sen per share, giving a fair value of 38 sen per share.

"Upgrade to buy from hold with target price raised to RM1.42 (from RM1.11) upon application of SOP-driven valuation from price to book value previously," said Lim.

At 11am, Dayang gained 1 sen or 0.95% to trade at RM1.06, giving it a market capitalisation of RM920.64 million.