30 JEWELS 2013 Edition
Solid Orderbook To Bolster Earnings Growth
•MYR5bn orderbook in the bag
•Solid execution track record
•Strategic alliance with Perdana Petroleum via a 26.1% stake invested in the offshore vessels firm
Dayang Enterprise (Dayang) is primarily involved in the provision of hook-up and commissioning (HUC), maintenance services as well as minor fabrication jobs for the oil and gas (O&G) industry.
Clear winner of Pan Malaysia HUC tender. Dayang recently secured some MYR3.8bn worth of HUC and topside maintenance jobs over five years in the Pan Malaysian fields. We view the huge win as a testament to Dayang's solid execution track record. Coupled with an existing orderbook of MYR1.2bn as at end-2012, the Group’s total orderbook stands at a whopping MYR5bn as at end-June 2013, spanning till 2018.
Solid execution track record. Since 2008, Dayang had delivered net profit margins of around 22%-24%. We believe that its cost control measures, coupled with its actively managed log book, which tracks its activities, contributed to the higher margins. We also saw its balance sheet gaining strength from year to year and as at end-March 2013, the Company has a net cash position of MYR79m.
Strategic investment in Perdana Petroleum (PETR MK). Dayang invested in a 26.1% stake in Perdana Petroleum, which provides offshore vessel chartering services in the O&G industry. We view this investment as a synergistic one, as the availability of Perdana's work barges will eliminate the need for Dayang to purchase new vessels, which could stretch its balance sheet. At the same time, Perdana Petroleum will benefit from securing guaranteed charters from Dayang over the next five years. The synergies from this investment could surprise our FY13F and FY14F estimates on the upside, as we have factored in lower net profit margin assumptions for now.
Company Report Card
Latest results. Though its 1QFY13 results were below our expectations, we remain confident that the Company will likely register strong earnings in 2HFY13 with contributions from its newly secured contracts.
Balance sheet / Cashflow. Dayang has a solid balance sheet with a net cash position of MYR79m as at end March 2013. Operating cashflow going forward is likely to remain strong.
ROE. We are projecting an increasing ROE due to its large contract win recently.
Dividends. Dividend yields are expected to remain above 3% in FY13F and above 4% in FY14F, based on a 50% dividend payout assumption, which is in line with its historical payout ratio.
Management. The same Management team, which has a solid record in driving profit, is expected to drive the company's earnings profile upwards.
BUY. We have a BUY rating on Dayang with a FV of MYR6.50, pegged to 15x FY14F EPS. We see more upside to our valuations if the Company is able to harness full synergies from its partnership with Perdana Petroleum, which will enhance our current net profit margin assumption from 18% to 20%-22% for its recent contract wins. We continue to like the stock for its excellent track record and strategic investment in Perdana Petroleum, coupled with decent earnings growth projected over the next three years.