This article first appeared in The Edge Financial Daily on February 25, 2020

Dayang Enterprise Holdings Bhd
(Feb 24, RM2.69)
Upgrade to outperform with a higher target price of RM3.40: Dayang Enterprise Holdings Bhd posted a record profit for the financial year ended Dec 31, 2019 (FY19), beating expectations, thanks to higher work orders received for its offshore TMS, as well as higher vessel utilisations for its marine charter.

Moving forward, Petroliam Nasional Bhd (Petronas) is still looking to increase its demand for maintenance construction and modification (MCM) and marine vessels — both of which will benefit Dayang. Additionally, its reduced debt following the conclusion of its debt restructuring and improving earnings could also lead to further finance cost-savings.

Dayang posted FY19 core net profit of RM215.1 million (arrived at after stripping off non-core items, for example, unrealised foreign exchange, gain on purchases and a reversal of accrued interests) — coming above our forecasts by 26%, and consensus by 5%, thanks to higher work orders for its offshore TMS and stronger vessel utilisation in its marine charter division. No dividends were announced, as expected.

In its latest activity outlook, Petronas has guided for a further increase in demand for its MCM and marine vessels — both of which are segments that will benefit Dayang. Additionally, on the back of its outlook recovery and recently concluded debt restructuring, Dayang’s total debt was reduced by 25% (or RM277 million) year-on-year, which would result in further finance
cost-savings.

We also raised our estimated FY20E’s core net profit by 11%, after factoring in stronger work orders and vessel utilisations, while introducing new FY21E numbers. Besides, risks to our call are weaker-than-expected work orders, poorer-than-expected margins, and a lower-than-expected vessel utilisation. — Kenanga Research, Feb 24