While Dayang’s orderbook is still strong at RM4 billion, work orders to be issued by oil majors which are largely based on call-outs remain uncertain given the tighter spending expected going forward.
KUCHING: Dayang Enterprise Holdings Bhd’s (Dayang) first quarter of financial year 2020 (1QFY20) earnings garnered mixed reactions, as net profit recorded either missed or were in line with expectations.
Dayang’s core net profit of RM13.7 million in 1QFY20 met only 11.3 per cent and 5.8 per cent of Public Investment Bank Bhd’s (PublicInvest Research) and consensus full-year expectations.
“We deem this a miss,” PublicInvest Research said.
“While 2Q and 3Q earnings are typically better on higher work order and profit margin expansions, this year will be different as a result of the Covid-19 pandemic which has lowered oil prices due to weakened demand amid enforcement of movement controls.”
“While orderbook is still strong at RM4 billion, work orders to be issued by oil majors which are largely based on call-outs remain uncertain given the tighter spending expected going forward.”
The research arm recalled that global oil majors including Petroliam Nasional Bhd (Petronas) have announced capital expenditure (capex) cuts ranging from 20 per cent to 30 per cent this year with upstream investment expected to plunge 32 per cent to US$335 billion.
“Lockdown measures have also resulted in significant disruptions to the group’s business operations as stricter operating procedure will need to be implemented.”
As such, PublicInvest Research cut FY20-22 earnings by 32.4 per cent on average as the research firm reduced work order assumptions to be issued by oil majors, as well as cutting margins.
Meanwhile, Dayang’s 1QFY20 reported net profit of RM9.3 million was within the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) but above consensus’ full-year earnings estimates.
“Despite only meeting less than five per cent of our full-year earnings estimate; we deem the results in-line as 1Q is typically the weakest quarter for Dayang,” MIDF Research said.
That said, MIDF Research also reduced Dayang’s FY20-21F earnings estimates by 27.7 per cent and 17.7 per cent respectively.
“We are expecting FY20 to be a challenging year for Dayang as Petronas has recently announced a cut in its planned capital expenditure (capex) for FY20 by about 20 per cent to RM39 billion from RM50 billion initially.
“Though Petronas mentioned that it plans to maintain its local capex spending and cut back on international spending; we opine that there is still a potential scale back on maintenance spending during the year as Petronas adopt a more cautious spending approach and prioritise certain ventures.
“As the bulk of Dayang’s topside maintenance works are performed for Petronas under its umbrella contract, we anticipate that Dayang will more or less be impacted from this recent decision by Petronas.”
However, MIDF Research expected Dayang to emerge from the current volatile operating environment successfully.