KUALA LUMPUR (Sept 23): RHB Small Cap Asean Research has initiated coverage of Dayang Enterprise Holdings Bhd at RM1.14 with a “buy” rating and target price of RM1.53 based on 14x FY23F P/E, or +1SD from its five-year mean (2% ESG discount), a 34% upside.

In a note on Friday (Sept 23), the research house said that as an experienced upstream maintenance player, Dayang is set to benefit from the five-year contract renewal cycle starting next year.

“While we expect earnings growth of 18-107% in FY22-24F, led by stronger hook-up and commissioning (HUC), and maintenance, construction and modification (MCM) work orders, the potential win of the Safina project could drive fleet rejuvenation, backed by its strong balance sheet,” it said.

RHB said Dayang’s overall margins could improve in 2022-2024 on the back of a better operating environment (potential rate revision and higher vessel utilisation) and the relaxation of quarantine requirements and SOPs.

“Note that Dayang’s GPM (ex-impairments) was at 12% in 2021, and could return to FY20’s 32% this year. We believe it will take time for its margin to resume to pre-pandemic levels of 40-47% (2018-2019), especially when the company is facing growing pressure in logistics and equipment costs.

“With an average fleet age of 12 years, Dayang is looking to kick-start its fleet renewal programme this year.

“It participated in Petronas’ Safina project, involving 16 OSV newbuild charter contracts.

“We believe it stands a good chance of winning the project, and is capable of growing its fleet by least two to four vessels, as its net gearing was at 0.08x as of 4Q21. Downside risks: Lower work orders, softer oil prices — which could limit clients’ spending — and higher operating costs,” it said.