This article first appeared in The Edge Financial Daily on January 15, 2020
Dayang Enterprise Holdings Bhd
(Jan 14, RM2.67)
Downgrade to market perform with a higher target price (TP) of RM2.75: We downgraded Dayang Enterprise Holdings Bhd to a “market perform” rating, albeit with a higher sum-of-parts TP of RM2.75, from RM2.35 previously, upon an earnings upgrade, implying a price-earnings ratio of 15 times on the financial year ending Dec 31, 2020 (FY20E).
Nonetheless, we tactically downgraded our call, given its strong share prices recently, coupled with a weaker fourth quarter of financial year 2019 (4QFY19) and a potential lack of contract awards for now acting as overhangs. However, any pullback from the current levels may pose an opportunistic entry.
Dayang Enterprise announced it had been awarded two contracts to provide integrated hook-up and commissioning (i-HUC) services for Petronas Carigali Sdn Bhd — Package B (SBA) and Package D (SKO). The contracts’ duration is four years, effective Jan 1, 2020 and shall expire on Dec 31, 2023.
While no contract values were included in the original announcement, as actual values would be dependent on work orders received, we estimate the contract values at roughly RM1 billion per package, thereby summing up to about RM2 billion for the two contracts.
We are positive about Dayang Enterprise managing to win not just one, but two packages from the much anticipated i-HUC tenders, highlighting the company’s competiveness and job delivery capabilities. The contracts are Dayang Enterprise’s first wins for the year, bringing its order book to about RM5 billion (similarly work order dependent).
In fact, the contracts follow Carimin Petroleum Bhd’s (not rated) recent i-HUC win, where the company had announced securing Package C (SKG) at end-December 2019. We expect these contracts to fetch roughly mid-teens operating margins.
We are expecting stronger FY20 earnings for Dayang Enterprise, premised on higher maintenance, construction and modification services and manhours demand from Petronas as guided in its latest activity outlook. However, a seasonally weaker 4QFY19 is expected; recall 4QFY18 was also “supernormal”, hence, it is not a good comparative benchmark.
With the i-HUC contracts finally awarded, we are not expecting any further contract wins for Dayang Enterprise for now. After the contracts’ awarding, we raised our earnings forecasts for FY20 by 16%, after imputing a higher contract replenishment of RM2 billion, from RM1 billion previously. — Kenanga Research, Jan 14