This article first appeared in The Edge Financial Daily on July 5, 2019

Dayang Enterprise Holdings Bhd
(July 4, RM1.36)
Upgrade to market perform with a higher target price of RM1.35: After disappointing losses in first quarter of financial year 2019 (1QFY19), we believe that Dayang Enterprise Holdings Bhd could stage a possible earnings recovery in its upcoming 2QFY19 results. This is because the company could potentially see a surge in work orders, coming off on the back of a quiet monsoon season in 1QFY19, coupled with an anticipated stronger utilisation for its offshore vessels.

Despite the losses in 1QFY19, its offshore vessels’ utilisation actually surged to 36% (from 27% in 1QFY18 and 24% in 1QFY17), dragged down only by its poorer-than-expected topside maintenance. Thus, it is likely to see a stronger vessel utilisation trajectory for the rest of the year, while the slower maintenance work orders in 1QFY19 could also mean a cascade of work flows to 2Q of 2019.

Currently, the company is in active tender for Petronas’ I-HUC contract. The contract covers topside hook-up, commissioning, and maintenance works for Petronas, and carries a gross contract value of around RM4 billion, with award date expected by end-2019.

Given Dayang’s industry-leading expertise in the offshore maintenance space, we reckon it is likely that the company could possibly win a portion of the gross contract, guesstimated at the value of around RM1 billion.

Meanwhile, current forward earnings will be largely underpinned by its existing order book of more than RM3 billion after it successfully secured a slew of new five-year PM-MCM contracts over last year.

To recap, the company recently announced a series of proposed corporate exercises, entailing rights issue and private placement, to raise around RM187 million.

While this is expected to tentatively dilute its share base by around 20% (based on illustrative exercise prices), we feel that any shares overhang, if any, could be short-lived given its relatively palatable size. This is also expected to lead to an interest saving cost of RM6.6 million per annum. — Kenanga Research, July 4