HDBSVR: BUY at RM2.04 on DAYANG, TP RM3.00

Dayang Enterprise Holdings Bhd
(July 22, RM2.10)
Maintain buy at RM2.04 with target price of RM3: Dayang has secured approximately RM680 million worth of contracts this year. This is 25% of the contracts awarded to the local oil and gas companies we track. This brings its order book to a record high of RM1.1 billion, implying strong earnings visibility for the next five years.

We understand that some of the contracts could be worth much more because, typically, additional work may need to be carried out, providing further upside to our earnings forecast.

To date, the company has met our FY2010 contract win assumption (RM600 million) and we are looking at RM1 billion contract wins for FY2011.

We expect 2Q2010 earnings to be close to 1Q2010 (RM13 million), before picking up pace in the 2H2010 driven by the RM400 million Shell contract.

FY2010F earnings are fully accounted for based on its current order book.

We also gather there could be an interim contract awarded for the five-year SKO & SBO (Sabah & Sarawak) topside maintenance contract which expires this August.

We believe Dayang stands a good chance of securing the contract given that it is the incumbent operator and it has previously succeeded in securing interim PMO (peninsular) contracts.

We are retaining our target price of RM3 per share pegged to 11 times FY2011F earnings per share (EPS).

Dayang offers strong earnings growth (FY2009-11F net profit compounded annual growth rate of 46.2%), underpinned by a sizable order book, superior margins, and new contract wins.

Valuation remains undemanding at 7.5 times FY2011F price-to-earnings ratio (PER) against the sector’s 9.1 times. — HwangDBS Vickers Research, July 22



This article appeared in The Edge Financial Daily, July 23, 2010.