Dayang’s 1Q results to be strained by Perdana Petroleum

KUCHING: Dayang Enterprise Holdings Bhd’s (Dayang) upcoming first quarter of financial year 2018 (1QFY18) results are expected by analysts to be strained by Perdana Petroleum Bhd (Perdana).

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Dayang’s 1QFY18 reported results could still be under strain from Perdana Petroleum which is suffering from high borrowings, high interest costs and low charter rates.

“However, Dayang on its own is currently experiencing high activity levels especially from the maintenance, construction and modification (MCM) works.

“The high activity levels are expected to sustain until at least October 2018,” MIDF Research said in a note yesterday.

MIDF Research expected Dayang’s fleet utilisation rate (UR) to be above 50 per cent while Perdana’s fleet utilisation rate is expected to hover around 70 per cent in FY18.

The research arm’s assumption was guided by Petroliam Nasional Bhd’s (Petronas) Activity Outlook Report 2017-2019.

“Dayang’s current orderbook stands at approximately RM3 billion, with long term contracts ranging from two to five years,” it said. “The company is also in the midst of increasing its orderbook, currently participating in RM8 billion worth of tenders.”

MIDF Research highlighted that Dayang is no stranger to Petronas’ maintenance, construction and modification (MCM) works as it was the incumbent for the previous hook-up and commissioning (HUC) contracts from 2013.

“Currently, Dayang on its own has six work vessels and two supply boats with an average age of approximately 6.5 years old. All of which are fit for purpose, within the stringent specifications required by Petronas and its production sharing contractors.”

From the offshore activity levels that are currently taking place, MIDF Research believed that the earnings upcycle for Dayang could start as early as 2QFY18.

MIDF Research observed that the recent sell down in share price this week presents a buying opportunity.

The research arm believed that company fundamentals remained intact whilst a clear direction of management to reduce gearing and to rejuvenate Perdana Petroleum and high orderbook quality obtained through track record and company merits.

As such, MIDF Research reiterated its ‘buy’ recommendation on Dayang with an unchanged target price of RM1.06 per share.

“Our buy recommendation is premised on large potential share price upside, earnings up-cycle in FY18, improving operating climate with higher activity levels and improving UR and improving conditions for Perdana.”