Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: RHB
Dayang Enterprise Holdings Bhd
(Jan 25, RM2.84)
Maintain outperform at RM2.85 with revised fair value RM3.54 (from RM3.36): The company is looking ahead and has high hopes of winning at least one of the upcoming topside maintenance contracts from Petronas. Worth a cumulative RM2 billion, the largest of the packages is for Sarawak at RM1 billion, while the Peninsular and Sabah packages are believed to be valued at RM500 million each. Assuming Dayang is successful, its order book will nearly double to RM1.86 billion.
Post the rights and bonus issuance plus the disposal of Borcos, we expect to see the company's cash pile growing to nearly RM300 million. We believe the surplus cash will first be utilised for the company's fleet expansion to beef up its core operations for the upcoming topside and maintenance contracts. We believe the company is also looking to purchase a work barge, given that its current fleet is mainly work boats.
We believe a tie-up with another offshore marine vessel party is unlikely in the near term. We foresee continual earnings pressure for such companies at least until mid-2011 as charter rates have yet to improve and vessel capacity is still ample. However, we would not rule out the possibility of M&As within the industry (e.g. Petra Energy and Shapadu).
We have assumed that the company will secure RM800 million of new wins in FY11. In terms of revenue recognition, we have assumed that the new
projects will start mid of CY11, and work on topside maintenance will be frontloaded to CY12 and CY13. We have also reincorporated the RM8 million of associate earnings into our FY10 forecasts as the Borcos disposal should only come into effect in April FY11. Our changes correspondingly result in our net earning estimates for FY10/12 increasing by 10.6%, 5.4% and 0.1% respectively.
Risks include high dependence on Petronas contracts leading to minimal control in project phasing and no contract replenishment which will hamper net earnings growth.
Overall, we still like the company for: (i) its position as one of the main brownfield/topside maintenance players in Malaysia; and (ii) its solid earnings track record thus far, which will continue to support its order book replenishment going forward. Based on our revised earnings forecasts, we estimate a new fair value of RM3.54 based on 15 times CY11 PER (from RM3.36 previously), which suggests an upside of 24.4% from the current share price. We thus maintain our 'outperform' call on the stock. ' RHB Research Institute Sdn Bhd, Jan 25
This article appeared in The Edge Financial Daily, January 26, 2011.
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: RHB
Dayang Enterprise Holdings Bhd
(Jan 25, RM2.84)
Maintain outperform at RM2.85 with revised fair value RM3.54 (from RM3.36): The company is looking ahead and has high hopes of winning at least one of the upcoming topside maintenance contracts from Petronas. Worth a cumulative RM2 billion, the largest of the packages is for Sarawak at RM1 billion, while the Peninsular and Sabah packages are believed to be valued at RM500 million each. Assuming Dayang is successful, its order book will nearly double to RM1.86 billion.
Post the rights and bonus issuance plus the disposal of Borcos, we expect to see the company's cash pile growing to nearly RM300 million. We believe the surplus cash will first be utilised for the company's fleet expansion to beef up its core operations for the upcoming topside and maintenance contracts. We believe the company is also looking to purchase a work barge, given that its current fleet is mainly work boats.
We believe a tie-up with another offshore marine vessel party is unlikely in the near term. We foresee continual earnings pressure for such companies at least until mid-2011 as charter rates have yet to improve and vessel capacity is still ample. However, we would not rule out the possibility of M&As within the industry (e.g. Petra Energy and Shapadu).
We have assumed that the company will secure RM800 million of new wins in FY11. In terms of revenue recognition, we have assumed that the new
projects will start mid of CY11, and work on topside maintenance will be frontloaded to CY12 and CY13. We have also reincorporated the RM8 million of associate earnings into our FY10 forecasts as the Borcos disposal should only come into effect in April FY11. Our changes correspondingly result in our net earning estimates for FY10/12 increasing by 10.6%, 5.4% and 0.1% respectively.
Risks include high dependence on Petronas contracts leading to minimal control in project phasing and no contract replenishment which will hamper net earnings growth.
Overall, we still like the company for: (i) its position as one of the main brownfield/topside maintenance players in Malaysia; and (ii) its solid earnings track record thus far, which will continue to support its order book replenishment going forward. Based on our revised earnings forecasts, we estimate a new fair value of RM3.54 based on 15 times CY11 PER (from RM3.36 previously), which suggests an upside of 24.4% from the current share price. We thus maintain our 'outperform' call on the stock. ' RHB Research Institute Sdn Bhd, Jan 25
This article appeared in The Edge Financial Daily, January 26, 2011.
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