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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 11 Jun 2021, 10:45 AM

 

Dayang Enterprise Holdings - New Maintenance Contract from Shell

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DAYANG was awarded a topside major maintenance contract from Sarawak Shell and Sabah Shell, with duration from April 2021 until August 2023. While no values were disclosed, we guesstimate the contract to be worth ~RM100m, bringing its order-book to ~RM2.5b. We are positive on the contract win, further increasing the group’s revenue visibility, as well as showcasing its job delivery capabilities. Maintain OP with TP of RM1.80.

New contract from Sarawak Shell and Sabah Shell. DAYANG announced that it has been awarded a contract by Sarawak Shell Berhad and Sabah Shell Petroleum Company for the provision of topside major maintenance. Duration of the contract is effective from 29 April 2021 until 19 August 2023.

Positive on the contract win. While no contract values were disclosed, as the actual value would be based on work orders issued by the client, we guesstimate the contract to be worth ~RM100m.

Naturally, we are positive on the contract win, increasing DAYANG’s forward revenue visibility as well as showcasing the group’s job delivery capabilities. This contract from Shell follows through from the previous shorter-term contract awarded by Shell, which commenced in July 2020, and subsequently extended in December 2020. As such, we believe the fruition of a longer-term contract implies that the client is relatively satisfied with DAYANG’s job capabilities.

Post contract win, DAYANG’s order-book should remain around ~RM2.5b – providing revenue visibility for the next 2-3 years. We expect the contract to fetch mid-teens operating margins.

Still tendering for jobs. While we understand that DAYANG may not be actively tendering for new maintenance jobs, the group is still in active participation for other job bids outside maintenance – e.g. hook-up and commissioning (HUC), engineering, procurement, construction and commissioning (EPCC), onshore jobs, as well as vessel charters. This is in efforts to further expand its revenue base, summing up to an estimated tender-book of RM500-600m.

Maintain OUTPERFORM, with unchanged TP of RM1.80 – pegged to 1.1x PBV, close to historical mean valuations. Our TP also implies forward PER of 14x. Post results, we make no changes to our FY20-21E earnings, as the contract win is still within our FY21E order-book replenishment assumption of RM300m (versus YTD contract wins of <RM150m).

Our OP call is premised on the group’s potential for gradual recovery in FY21-22, anticipating the return of job flows from the low suffered in 2020.

Risks to our call include: (i) weaker-than-expected work orders, (ii) lower-than-expected margins, and (iii) poorer-than-expected vessel utilisation.

Source: Kenanga Research - 11 May 2021

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