Dayang Enterprise Holdings Bhd(Oct 28, RM2.39)
Maintain buy at RM2.35 with target price of RM3: The RM2 billion hook-up and commissioning contract (four packages) might be awarded as early as next month. Dayang has a solid track record in this segment, and has secured 57% of the jobs awarded in 2010.
We believe Dayang’s strong footing places it among the favourites to secure at least one of the packages. Assuming the packages are of equal value, Dayang could add RM500 million into its backlog, bringing its total order book to a record high RM1.5 billion or book-to-bill ratio of five times.
We estimate net profit at RM20 million to RM23 million, underpinned by contribution from the Shell contract and hook-up and commissioning jobs. Dayang has secured about RM600 million worth of jobs in 2010, within our expectation. But there could be positive surprises to our 2011 new wins assumption if Dayang succeeds in its bid for one of the packages of the above contract. Every RM100 million increase to our contract win assumption would raise FY11/FY12F earnings by 6% or 7% each.
We reiterate our “buy” call on this growth story in the making. We like Dayang for its growth story (FY09/FY11F net profit CAGR of 46.2%), underpinned by a strong order book and superior margins. Dayang is also expected to be among the beneficiaries of potential new contracts. It is our high conviction call for the sector, and our RM3 target price is pegged to 11 times FY11F EPS. Dayang is trading at an attractive FY11F PER of 8.6 times against the sector’s 10.3 times. — HwangDBS Vickers Research, Oct 28
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