Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: ECMLIBRA
Dayang Enterprise Holdings Bhd
(Feb 11, RM2.23)
Maintain hold at RM2.27 with target price revised to RM2.04 (from RM1.63): Dayang announced on Feb 10 that it had been awarded a five-year contract to provide topside maintenance services (TMS) to Petronas Carigali Sdn Bhd (PCSB). The contract covers Sabah, Sarawak and Peninsular Malaysia and is only the first of two packages that should total RM1.2 billion. The contract is notably a 'call-up' contract made up of work orders, which will be awarded at the discretion of PCSB during the duration of the contract. The values of the work orders are based on the contract schedule of rates.
The contract has been widely expected by the market and as such, we have built it into our forward estimates and therefore no changes are required following the award of contract. In terms of margins, we have factored in margins of some 40% at Ebit level, similar to previous TMS jobs the group had done.
We believe that news on contract flow has been pretty much priced into Dayang but other catalysts have now emerged. Its recent fundraising exercise of some RM245 million (RM135 million from the sale of Borcos Shipping Sdn Bhd and RM110 million from the rights issue) indicates to us that the group is out shopping. Whether it will be buying new assets (in the form of work boats or barges) or buying out competitors remains to be seen. We will be on the lookout for further developments on this.
Our previous downgrade of Dayang arose from reducing our PER from 15 times to 12 times (which is the +1 standard deviation of one-year rolling average PER). We were of the view that no further PER expansion should occur, given that most of the new contracts were already priced in. However, given our view that M&A are on the cards, we believe that Dayang can be deserving of a higher multiple. If the group acquires, it would be more comparable to bigger cap oil and gas stocks like Wah Seong and SapuraCrest. These stocks typically trade at an average 15 times PER. As such, we are raising our PER target on Dayang back to 15 times. Pegging this to FY11 earnings per share of 13.6 sen, we derive our revised target price of RM2.04 from RM1.63 previously (RM2.55 pre-bonus and rights). We maintain our 'hold' call on the stock. ' ECM Libra Investment Research, Feb 11
This article appeared in The Edge Financial Daily, February 14, 2011.