Dayang Enterprise Holdings - 2Q19 - Best Ever Results in Years

Date: 26/08/2019

Source  :  KENANGA
Stock  :  DAYANG       Price Target  :  1.45      |      Price Call  :  HOLD
        Last Price  :  2.07      |      Upside/Downside  :  -0.62 (29.95%)

DAYANG recorded one of its strongest ever results in 2Q19, broadly within expectations, from improved maintenance work orders coupled with higher vessel utilisation. As such, we posit that the strong momentum could continue well into the 2H, with our numbers (and consensus) already imputing a stronger 2H19. No changes to our MARKET PERFORM call, as recent strong share price’s appreciation may have reflected most positives, with SoP-TP of RM1.45.

1H19 broadly within expectations. DAYANG recorded 1H19 core net profit of RM48.3m (adjusted for non-core items e.g. unrealised forex, impairments), making up 45% and 40% of our and consensus full-year earnings forecasts, respectively. Nonetheless, we deem this to be broadly within expectations, in anticipation of a seasonally stronger 2H, particularly in the 3Q. No dividends were announced, as expected.

Strong 2Q19 recovery. DAYANG chalked up one of its best ever 2Q results, recording a core net profit of RM53.5m – more than doubled YoY, thanks to higher profit margins mix for topside maintenance work orders (offshore TMS operating margin improved by 8.6ppt YoY), coupled with higher vessel utilisation (79% vs 70%). Sequentially, 2Q19 bounced back from losses QoQ given a seasonally weaker 1Q, driven by higher maintenance work orders (where offshore TMS segmental profit more than doubled) on top of higher vessel utilisation (79% vs 36%). Cumulatively, 1H19 core net profit jumped 65% YoY, similarly due to higher margin mix for maintenance work orders (+3.3ppt) on top of improved vessel utilisation (58% vs 49%).

Follow-through from the strong results. After posting one of its best ever quarterly results in years, we believe this may suggest that the strong job momentum could continue into the 2H, with our numbers and consensus already imputing a slightly stronger 2H19. Meanwhile, we are still awaiting the completion of its proposed debt restructuring by end of the year, which entails: (i) a 1-for-10 rights issue, (ii) private placement of up to 10% of total issued shares, and (iii) issuance of Sukuk of RM682.5m and subscription of PERDANA’s RCPS (refer to our report dated 21 May 2019 for further details).

Maintain MARKET PERFORM. Following its incredibly strong results, we raised our SoP-TP slightly to RM1.45 (from RM1.35 previously), after upping valuations for its offshore TMS by a notch to 16x PER (from 15x previously) – still a slight discount to the O&G sector average of 17x. Note that our TP has already taken into account full share-base dilution from the proposed corporate exercises (~20% dilution). No changes were made to our FY19-20E numbers post results.

Nonetheless, despite the strong results, we are still somewhat reluctant to call an outright OUTPERFORM for now, as recent strong share prices (+68% after bottoming-out from its low in late May) may have already reflected current positives. Our TP, which implies a forward PBV of 1.4x, is already priced near +1SD premium against its 5-year mean.

Risks to our call are: (i) stronger-than-expected work orders, (ii) increase in lump sum orders, (iii) higher-than-expected vessel utilisation, and (iv) falling through of corporate exercises.

Source: Kenanga Research - 26 Aug 2019

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