KUALA LUMPUR (June 24): MIDF Research maintained its “neutral" rating on Dayang Enterprise Holdings Bhd, but cut its target price to RM1.42 from RM2.69 previously, after revising its price-earnings ratio (PER) forecast for the financial year ending Dec 31, 2021 (FY21) to 6.1 times earnings per share (EPS) of 23.2 sen.

In a research note today, MIDF analyst Noor Athila Mohd Razali said its revised target PER is based on Dayang’s five-year historical PER, which is fair as all positive news would have been priced in, while oil prices had weakened due to the Russia-Saudi Arabia oil price war, amid an already challenging operating environment for most oil and gas players due to the Covid-19 pandemic.

“That said, we expect Dayang to emerge from the current volatile operating environment successfully given its: i) improving profit margins for work orders; ii) improving vessel utilisation and financials of Perdana Petroleum Bhd; and iii) strong and proven track record as one of the leading MCM (maintenance, construction and modification) service provider which, we opine, will ensure a stable earnings trajectory for Dayang in FY20,” she said.

Noor Athila noted that Dayang’s net profit of RM9.3 million for the first quarter ended March 31, 2020 (1QFY20) was within MIDF’s estimates.

“Despite only meeting [less than 5%] of our full-year earnings estimate, we deem the results in line as the first quarter is typically the weakest for Dayang.

“Dayang’s earnings were boosted by higher profit margins for topside maintenance work and a high vessel utilisation rate of 55% in 1QFY20,” Noor Athila said.

Meanwhile, Dayang’s subsidiary Perdana Petroleum Bhd saw its losses narrow to RM13.9 million for 1QFY20 after its vessel utilisation rate rose to 64% from 36% from a year ago.

She also noted that Dayang’s order book amounted to RM4 billion as of yesterday, which she expected to last until 2025.

This forecast included Dayang’s recent wins of two integrated hook-up and commissioning (I-HUC) contracts in December 2019 from Petronas Carigali Sdn Bhd and Carigali-PTTEPI in February 2020.

The research house reduced Dayang’s FY20 and FY21 earnings estimates by 27.7% and 17.7% respectively as it expected FY20 to be a challenging year for Dayang following a recent announcement by Petroliam Nasional Bhd (Petronas) to cut its planned capital expenditure for FY20 by about 20% to RM39 billion.

As the bulk of Dayang’s topside maintenance work is performed for Petronas under its umbrella contract, MIDF anticipated that Dayang will more or less be impacted by the recent decision of the national oil company.

At 9.57am, Dayang shares gained three sen or 2.33% to RM1.32, with a market capitalisation of RM1.41 billion. It saw 12.73 million shares traded.