Jun 9, 2010

Dayang Enterprise - Reiterate Buy

Dayang Enterprise Holdings Stock Code 5141 (RM1.81; Buy; Price Target:
Good things come in large contracts
•  PETRONAS’ RM1.2b maintenance contracts open for tenders
•  Dayang leveraging on its 19-year track record
•  Reiterate Buy, TP raised to RM3.00

Frontrunner for PETRONAS maintenance contracts. Dayang is in a good position to secure some of these contracts, particularly the RM800m SKO&SBO portion. It has a long track record (incumbent of the current SKO&SBO contract) and owns workboats, assets which are required for the job. The tender is expected to close at end June and the award will be in the next 6-9 months. Dayang’s outstanding order book stands at RM1.1b, or 3.5x FY10F revenue cover. PETRONAS’ new direction a catalyst for maintenance industry. PETRONAS aims to boost domestic investments by focusing on improving and prolonging extraction from existing oil wells. This augurs well for the overall industry, especially the hook-up & commissioning and maintenance segments. We understand that a new RM2.0b hook-up & commissioning umbrella contract could be out by the end of the year. Dayang is a pre-qualified contractor for the existing contract, and potential beneficiary of the next.

Maintain Buy; good outlook for maintenance industry.  We believe the market has not priced in the positives from PETRONAS’ investment commitment in local E&P. Our revised RM3.00/share TP, pegged to FY11F EPS, reflects our 5% and 17% earnings upgrade for FY10F and FY11F, respectively, after imputing higher contract wins assumptions (RM600m in 2010; RM1.0b in 2011). Dayang offers strong earnings growth (FY09-11F net profit CAGR of 46.2%), underpinned by a strong order book, superior margins, and new contract wins. It is currently trading at undemanding 6.7x FY11F PE
against sector average of 8.3x.

by HWDBS Vickers

Dayang Enterprise is an investment holding company. The principal activities of subsidiary companies are the provision of offshore topside maintenance services, minor fabrication operations, offshore hook-up and commissioning, and charter of marine vessels relating to the Oil and Gas Industry.