Dayang poised for further wins after recent contract
KOTA KINABALU: Analysts are positive on Dayang Enterprise Holdings Bhd’s (Dayang) recent Pan-Malaysia maintenance, construction and modification (MCM) contracts and they believe the company is poised for further contract wins, moving forward.
In a filing on Monday, Dayang announced that it has been awarded two MCM contracts from Kebabangan Petroleum Operating Company Sdn Bhd, and Repsol Oil & Gas Malaysia Ltd.
The duration of both contracts are for five years, starting 2018 to 2023, with an option to extend an additional year.
“While no firm contract value was mentioned as the actual value would be dependent on work orders being issued, we guesstimate both contracts to be roughly worth RM600 million to RM800 million in value.
“Overall, we are positive on the contract wins as they are secured from new clients whom Dayang had previously not provided PMMCM services to, thus highlighting its competitiveness within the space, while also providing added jobs flow and earnings visibility,” said Kenanga Investment Bank Bhd’s research arm (Kenanga Research) in a report.
Year to date (YTD), Dayang has already secured a guesstimated contract value of circa RM1 billion. This exceeded the research arm’s previous financial year 2018 (FY18) order-book replenishment assumption of RM800 million while adding an additional circa 50 per cent to Dayang’s latest outstanding order-book of around RM1.9 billion.
Post-contracts award, Kenanga Research raised Dayang’s FY18 orderbook replenishment assumption to RM1.5 billion (from RM800 million previously), thus resulting in a four to 14 per cent increment in its FY18 to FY19 estimated earnings.
“Given that the current landscape is more geared towards costs optimisation, we believe earnings before interest and tax (EBIT) margins would mostly be in the range of 10 to 20 per cent, and no longer similar to historical EBIT margins of 20 to 25 per cent in 2013,” it added.
“Moving forward, we believe Dayang is poised for further contract wins as the slew of maintenance contracts awarded back in 2013 are due for renewing. Our current order-book replenishment assumption imputes roughly an additional two maintenance contracts win for the rest of the year,” Kenanga Research commented.
Meanwhile, Public Investment Bank Bhd’s research arm (PublicInvest Research), which viewed contract wins evidences of Dayang’s strong position as a brownfield services specialist, believed that Dayang could win another two or three contracts.
“Earlier, Dayang reported that it participated in about 10 PM MCM-related tenders for packages totaling RM8 billiong worth of jobs that are on offer. It now has three in hand, inclusive these new contracts.
“We expect there will be another two to three contracts to come given Dayang’s strong position as a brownfield services specialist, having good track record in handling similar contracts back in 2013.
“Altogether, we estimate the value for all PM MCM contracts under Dayang could be worth circa RM1.5 billion to RM1.8 billion, with a conservative profit margin of mid to high single digits,” the research team explained.
While positive on its outlook, PublicInvest Research retained its forecast as it has broadly accounted the developments under its annual orderbook replenishment target.
“Dayang’s balance orderbook in hand remains solid at about RM3.3 billion. Earnings outlook for this year could be cloudy however due to slower-than-expected recovery of Perdana Petroleum which we reckon it may take some time,” it cautioned.
Overall, PublicInvest Research pegged a ‘neutral’ call on the stock while Kenanga Research reiterated its ‘outperform’ call.
While no firm contract value was mentioned as the actual value would be dependent on work orders being issued, we guesstimate both contracts to be roughly worth RM600 million to RM800 million in value. Kenanga Research