Friday, March 22

Exceeding analysts’ expectations


Another contract award should further boost Dayang’s strong order book — Analysts

TOP PICK: Dayang is reported to be very close to a contract award for topside maintenance services that may involve retrofitting as well as HUC works, according to Ching. The tender, supposedly to be worth up to RM2 billion, will be divided between Peninsular Malaysia, Sabah and Sarawak.

KUCHING: The third quarter performance by Dayang Enterprise Holdings Bhd (Dayang) has exceeded analysts’ expectations, on the back of strong revenue and an even stronger profit margin contribution.

For the three months ended September 30, the Miri-based offshore oil and gas services provider posted year-on-year revenue growth of 47 per cent to RM72.427 million, while profit before tax (excluding share of results of an associate) jumped by 112 per cent.

“While we were expecting a better second half for Dayang, earnings still outperformed our expectations,” noted ECM Libra Capital Sdn Bhd’s head analyst Bernard Ching in his report yesterday.

“Moreover, the bulk of jobs secured in the first half had commenced in the third quarter onwards – hence the jump in earnings. These jobs include the RM400 million topside maintenance work for Sarawak Shell as well as two HUC (hook up and commissioning) jobs for Petronas Carigali.

“Going forward, Dayang is reported to be very close to a contract award for topside maintenance services that may involve retrofitting works as well as HUC. The tender, supposedly to be worth up to RM2 billion, will be divided between Peninsular Malaysia, Sabah and Sarawak.”

Adding to this, Ching disclosed that Dayang would likely become the ‘top pick’ for the Sabah portion, given their viable base location in Miri.

“That alone could be worth RM400 million. We have factored in some RM140 million of new jobs for recognition in 2011 alone, thus have technically captured this job in our forward earnings.”

In reflecting this, ECM Libra raised its target price per share estimates on Dayang from RM2.65 to RM3.17, adding that the research house viewed the stock as being ‘fully-valued’.

Notably, Dayang’s results also highlighted the return of its 40-per cent associate, Syarikat Borcos Shipping Sdn Bhd (Syarikat Borcos) coming out of the ‘red’ during the current quarter.

“During the quarter, Syarikat Borcos made a loss owing to six new vessel deliveries that were not chartered out. This brought down the utilisation of the fleet in general to an estimated less than 70 per cent, hence incurring the loss.

“Nevertheless, the second quarter’s losses were just a blip as numbers have turned around in the third quarter, as the group has managed to secure jobs for these vessels,” explained Ching.

Almost in agreement, Yap Huey Chiang from RHB Research Institute Sdn Bhd concurred that vessel utilisation for Syarikat Borcos had improved, but opined that “the charters are mainly short-term.”

“Hence, the risk of disappointing earnings for 2010 is still high. Cumulative associate earnings stand at RM3.6 million versus our full-year estimate of RM8 million,” said the analyst from the investment bank-backed research house.

Nevertheless, Yap believed that Dayang would continue to ramp up its assets in the event its order book should grow.

“Dayang has committed to a new workboat in August due for delivery by the end of 2011. Furthermore, its latest corporate exercise should increase its bonus and rights issues share base to 550 million.

“Incorporating all this, we have put assumptions of a 19.9 per cent to 31.5 per cent accretion in our net profit forecasts over the next three years. Adjusting for both the bonus and rights issuance exercise, however, would however dilute our EPS (earnings per share) forecasts by 20 per cent to 35 per cent,” he added.

To note, Dayang declared a proposal for a one-for-four bonus issue to be followed by a one-for-four rights issue concurrently with its third quarter results announcement.

On this, HwangDBS Vickers Research Sdn Bhd’s (HwangDBS Research) analyst Lee Wee Keat said proceeds raised from the rights issue would likely be utilised for working capital and capital expenditure.

“From the corporate exercise, which is expected to be completed in the first quarter of next year, we foresee an average 20 per cent dilution in EPS, assuming the rights are priced at RM1 for each of the 110 million new shares.

“We understand the rights issue would be priced at 40 to 50 per cent discount to the five-day weighted average market price,” noted Lee.

Consequently, HwangDBS Research maintained its ‘buy’ call for Dayang for its growth story, supported by a strong order book and strong margins, as well as potential new contracts.

“We nudged up Dayang’s target price to RM3.40 per share against the previous RM3 per share,” added Lee.