Dayang Enterprise Holdings Bhd
(Dec 4, RM2.53)
Maintain “buy” at a target price (TP) of RM3.25. Dayang Enterprise Holding’s business is unique compared with most other listed oil and gas (O&G) service providers in Malaysia.

The group caters exclusively to the offshore brownfield market. This segment is resilient to volatility in crude oil prices because it relates to the upkeep of existing production facilities. Therefore, even in this period of weak crude oil prices, we are retaining our forecast earnings for Dayang Enterprise. The group’s earnings were also resilient during the 2008 to 2009 financial crisis.

Dayang Enterprise’s order book consists largely of long-term contracts for hook-up and commissioning (HUC) services worth RM3.5 billion, and also topside maintenance service (TMS) contracts worth RM690 million. All the HUC jobs are five-year contracts which will expire only at end-2018. TMS contracts will start to expire from the fourth quarter of financial year ending 2105, but these constitute only 10% of the outstanding order book. Additionally, Dayang Enterprise will also continue to see steady contributions from Perdana Petroleum Bhd (28.6% associate stake) which has chartered out most of its vessels on long-term contracts. They will contribute to 12% of Dayang Enterprise’s bottom line.

We cut TP to RM3.25 (13 times FY15 forecast earnings per share) from RM3.80 previously, after downgrading TP price-earning ratio to 13 times from 15 times. This reflects the O&G mid-cap trough valuation. However, we are retaining our “buy” rating for Dayang Enterprise for the group’s clean balance sheet and resilient earnings profile. — AllianceDBS Research, Dec 4

This article first appeared in The Edge Financial Daily, on December 5, 2014.