Dayang Enterprise on the recovery path


DAYANG Enterprise Holdings Bhd recorded a material pick-up in activity in the first quarter of 2021 (1Q21) compared to 4Q20 from the procurement of materials for its hook-up and commissioning (HUC) business.

Hong Leong Investment Bank Bhd (HLIB), in a research note yesterday, stated that the increase in work activity is most likely to result in better margins due to its operating leverage.

The investment bank added that most of Dayang’s contracted assets are only expected to be converted into revenue in 2Q21.

“Overall, we expect a decent year-on-year (YoY) growth in the financial year of 2021 (FY21) with 1Q21 being the weakest quarter of FY21. Its offshore support vessel (OSV) business is also expected to go through a slow 1Q21 before picking up from 2Q21 onwards from the adverse weather impact and Covid-19 cases which have hit Miri in 1Q21,” HLIB said.

The company recently won a contract from Sarawak Shell Bhd and Sabah Shell Petroleum Co Ltd for the provision of topside major maintenance services under Package A.

HLIB added that Dayang has submitted two bids for two anchor handling tug supply (AHTS) vessels contract worth RM70 million to RM80 million each, as well as two landing crafts for Dayang Marine Services Sdn Bhd at RM15 million each from Petroliam Nasional Bhd (Petronas).

“We believe Dayang is at the lower end of some of the projects bid, which makes it very possible for Dayang to win these contracts. The role of Dayang is to enable Petronas to reduce their capital expenditure (capex). The contract will be based on daily fixed cashflow payments with a ceiling price of RM39,000 per day for seven years,” HLIB said.

The AHTS projects are expected to generate revenue of RM14 million per year with an operational cost of RM4 million, and Dayang is expected to break-even on a net profit basis in the first two to three years of its contract before recording a positive net profit thereafter.

Dayang’s placement exercise was completed in early March this year, where it placed out 96 million shares to raise RM133 million at RM1.37 per share.

Some RM75 million of the proceeds would be used for the redemption of its sukuk on a request order basis, while the remaining RM58 million would be used to satisfy working capital requirements.

“Dayang intends to sell two of its old AHTS to lower the age profile whereby the current book value for AHTS is about RM41.3 million and its market value is about RM20.7 million,” HLIB said.

The oil and gas company will allocate a capex of RM150 million for FY21, with RM20 million going towards its new yard in Bintulu for equipment which is slated to be completed by the end of August or early September 2021.

“The completion of the yard is expected to result in 10% cost savings for every project. The cost savings would mainly come from the streamlining of the procurement process. The bulk of the remaining capex of RM120 million will be spent on Safinah project” HLIB said.

HLIB maintained a ‘Buy’ call on Dayang with an unchanged target price of RM1.70. The stock last traded at RM1.41 yesterday.