Dayang Enterprise Holdings Berhad : In An Industry Sweet Spot - 22/09/2010

8/8/2019 Dayang Enterprise Holdings Berhad : In An Industry Sweet Spot - 22/09/2010

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Table 1 : Investment Statistics (DEHB; Code: 5141) Bloomberg: DEHB MK

Net Net

FYE Turnover profit EPS Growth PER C.EPS* P/ NTA P/CF ROE Gearing GDY

Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (x) (%)

2009 197.0 44.7 12.7 (8.5) 16.2 - 2.2 14.4 13.9 (0.2) 2.4

2010f 258.5 57.6 16.4 28.8 12.6 18.0 2.0 13.1 16.7 (0.1) 2.4

2011f 298.5 70.6 20.1 22.6 10.3 22.3 1.8 9.0 18.2 (0.3) 2.9

2012f 338.5 80.5 22.9 14.0 9.0 27.0 1.5 7.6 18.2 (0.3) 3.3

Main Market Listing / Non-Trustee Stock / Non-Syariah Approved Stock By The SC * Consensus Based On IBES

♦ Long time oil and gas player. Although only listed on the Bursa main

market in 2008, Miri-based Dayang Enterprise has been in the oil and gas

services since 1980. It first traded hardware materials and supplied

manpower for the industry, and only later (around 1991) did its service

range expand to provisioning of maintenance services, minor fabrication

operations and offshore hook-up and commissioning. The company’s

latest foray is into the charter of marine vessels via: 1) charter of one of

its workboats to Brunei Shell; and 2) purchase of 40% stake in Borcos.

♦ Investment case. 1) Premium net margins of above 20%, double that of

its industry peers like Petra Energy, Kencana Petroleum and Sapuracrest

which typically command net margins at or below the 10% mark; 2) Few

notable competitors improve Dayang’s chances of winning contracts;

3) Earnings lift from Borcos venture as the industry improves going

forward to FY11; and 4) Potential regional expansion, to countries likeBrunei.

♦ Forecasts. We forecast FY10-12 revenue for the topside maintenance

division to be RM240-320m, while marine charter division will earn

RM45.5m p.a.. In terms of margins, we forecast EBIT margins of 26% for

the topside-maintenance division and 23% for marine charter, which

would lead to FY10-12 EBIT earnings of RM63.6m, RM79.4m and

RM89.8m respectively. For Borcos we are conservative and forecast FY10-

12 net earnings to be RM20-45m respectively which will result in RM8-

18m associate contributions for Dayang.

♦ Key risks for the stock. 1) High dependence on domestic contracts and

Petronas could lead to minimal control in project phasing; 2) Weakness in

Borcos earnings could impact earnings; and 3) Continued sluggish

contract flows which will lead to another neutral year for the oil and gas

sector.

♦ Valuation. We value Dayang Enterprise at RM2.61/share based on FY11

PER of 13x (inline with the target PER for Kencana Petroleum and

Sapuracrest Petroleum). Our fair value estimate implies a 26% upside to

the stock’s current share price of RM2.07. We like Dayang for its premium

net margins and we believe the company is currently in an industry sweet

spot as a reputable brownfield services oil and gas player.

Corporate High l ig hts

Ne w Co ve rag e

Dayang EnterpriseIn An Industry Sweet Spot M

a l a s i a

M

A R K E T

D A T E L I N E

P P

7 7 6 7 / 0 9 / 2 0 1 0 ( 0 2 5 3 5 4 )

Share Price : RM2.07Fair Value : RM2.61Recom : Outperform

(Initiate Coverage)

Issued Capital (m shares) 352.0Market Cap (RMm) 728.6

Daily Trading Vol (m shs) 0.6

52wk Price Range (RM) 1.22-2.20

Major Shareholders: (% )

Naim Holdings Bhd 36.0

Tengku Yusof B. TengkuAhmad Shahruddin 12.4

Ling Suk Kiong 10.0

Vogue Empire S/B 8.5Joe Ling Sew Loung @ LinShou Long 5.3

FYE Dec FY10 FY11 FY12

EPS chg (%) - - -

Var to Cons (%) (0.8) (5.2) 16.5

PE Band Chart

Relative Performance To FBM KLCI

Yap Huey Chiang(603) 9280 2239

[email protected]

Please read important disclosures at the end of this report.

22 September 2010

RHB ResearchInstitute Sdn BhdA member of theRHB Banking GroupCompany No: 233327 -M

Dayang Enterprise

FBM KLCI

PER = 16x

PER = 13x

PER = 10x



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Background

♦ Long time oil and gas player. Although only listed on the Bursa’s Main Market in 2008, Miri-based Dayang

Enterprise, has been in the oil and gas industry since 1980 when it first traded hardware materials and supplied

manpower for the industry. Only later (around 1991), did its service range expand to the current core

operations, provisioning of maintenance services, minor fabrication operations and offshore hook-up and

commissioning. Its latest foray is into the charter of marine vessels business, mainly via a 40% acquisition in

Syarikat Borcos Shipping S/B.

♦ Simple structure. The company runs on a relatively simple structure of three main subsidiaries: Dayang

Enterprise S/B (DESB), DESB Marine Services S/B (DMSSB); Fortune Triumph S/B (FTSB); plus a 40% stake in

Syarikat Borcos Shipping S/B (SBSSB), a marine transportation and support services provider for the offshore oil

and gas industry.

Figure 1: Dayang Enterprises Corporate Structure

Source: Company

♦ Experienced management team that has majority stake in company. Founder and current ExecutiveDeputy Chairman Ling Suk Kiong boasts 30 years of experience; partner and current Executive Director Harry Bin

Bujang has 28 years under his belt, while Managing Director Tengku Yusof Bin Tengku Ahmad Shahruddin has 20

years of experience in the oil and gas industry. The three of them own about 30% of Dayang Enterprises (directly

and indirectly), while 36% stake is owned by Naim Holdings Bhd, a Sarawak-based developer and contractor,

which was recently in the limelight for being part of joint venture with Samsung Engineering that won the long

awaited Sabah Oil and Gas Terminal (SOGT) project.

Figure 2: Shareholder Listing (@ 30 June 2010)

36%

9%12%

10%

5%

28%

Naim Cendera Holdi ngs Bhd

Vogue Empi re S/B (Cont rol led

by Harry Bin Bujang)

Tengku Yusof Bin TengkuAhmad Shahruddi n

Ling Suk Kiong

Joe Ling

Publ ic

Source: Company

Provision of offshoreTopside Maintenance

Services, minor fabricationand offshore hook-up and

commissioning

Owner and Charter of marine vessels

Provision of rentalequipment

Provision of marinetransportation and support

services as well asintegrated land-logistics

services



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♦ Topside maintenance services (TMS) division is star income generator. The company’s first exposure to

topside maintenance services was in 1991, via a Sarawak Shell/Sabah Shell maintenance contract; but the

division’s services have expanded to providing hook-up and commissioning as well. For the past five years

contributions from the division have accounted for more than 90% of revenue and more than 50% of Dayang’s

operating profit. This is likely to continue in the near future judging from its to-date order book (RM1bn) and

tender book (RM3.7bn) which is still very much skewed to both these services (92% of total order book; 100% of

tender book).

Table 2 : Five Year Segmental Breakdown

FYE Dec RM(m) FY05* FY06* FY07* FY08 FY09

Revenue

Topside Maintenance 112.4 108.3 125.3 180.2 196.3

Marine Charter 2.1 24.4 31.3 42.3 62.7

Equipment Hire 2.9 3.1 3.9 5.0 4.2

Elimination (5.0) (26.9) (33.3) (46.4) (66.2)

Total 112.4 108.9 127.1 181.1 197.0

Contribution from Topside Maintenance 100.0% 99.5% 98.5% 99.5% 99.7%

Operational Profit


Marine Charter (1.1) 5.2 6.6 7.1 19.0

Equipment Hire 2.0 2.2 2.7 3.7 2.8

Total 31.3 31.2 39.2 64.1 52.0

Contribution from Topside Maintenance 97.2% 76.2% 76.2% 83.1% 58.2%

* based on f igures from ProspectusSource: Company

Table 3: Order Book and Tender Book

Order Book

Description Est. contract balance (RM'm) Contract Ends

Petronas Carigali: Integrated Minor Maintenance (IMM) 80 Dec-11

Petronas Carigali: Hook-up and Commissioning430

November 2010 but work endsJune 2011

Murphy Sabah: Topside Major Maintenance 80 Dec-12

Brunei Shell Petroleum: Charter of Dayang Zamrud 62 Feb 2013 plus 2 years

Sarawak Shell & Sabah Shell: Topside Maintenance Contract 390 March 2015 plus 1 year

Total 1,042

Tender Book

DescriptionEstimated Contract Value

(RM’m)Duration (years)

Petronas Carigali Topside Structural Maintenance ContractSKO (Sarawak Operations)

800 5

Petronas Carigali Topside Structural Maintenance ContractSBO (Sabah Operations)

400 5

Petronas Carigali Topside Structural Maintenance ContractPMO (Peninsular Operations)

500 5

Hook-up & Commissioning Umbrella Contract 2,000 2

Total 3,700

Source: Company



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♦ Internalisation of costs via marine charter segment. DMSSB’s earnings are largely internally-generated

and its vessels (3 workboats and 1 supply boat) are mainly chartered to sister subsidiary DESB. However, at the

start of FY10, the segment started generating external revenue with the 3-year charter of MV Dayang Zamrud to

Brunei Shell Petroleum for a contract value of around RM70m (refer to Table 2). Going forward, although the

company might expand its fleet (it is still chartering third-party workboats) we expect the acquisitions to

supplement its topside maintenance operations instead of being chartered out for additional revenue. Note the

company has recently entered into an acquisition for an offshore accommodation workboat from Shin Yang

Shipyard S/B at a purchase price of RM63.7m. We take this as a signal that the company is gearing up capacity

in anticipation of more contracts in the near future.

Table 4: Dayang Enterprise’s Marine Fleet

Name Type Built

Dayang Pertama Maintenance and Accommodation workboat 2005

Dayang Berlian Maintenance and Accommodation workboat 2007Dayang Nilam Maintenance and Accommodation workboat 2008

Dayang Zamrud Maintenance and Accommodation workboat 2009Dayang Maju Straight supply vessel 2006

Source: Company

♦ Diversification via Borcos. Syarikat Borcos Shipping S/B is Dayang’s 40% associate acquired in December

2009 at a price-tag of RM132m. To date, Borcos operates 35 vessels and is considered second to Bumi Armada

in terms of vessel fleet. In terms of newbuilds, the company is awaiting two 12k-brake-horse-power (bhp)anchor handling tug and supply vessels (AHTS) which are tentatively scheduled for delivery by mid-2011. Initial

thoughts were to list Borcos in 2011, but due to certain operational headwinds on Borcos’s end the plan has

been pushed to later.

Table 5: Borcos Fleet

Name Vessel Type

1 MV Borcos 12 Mooring Launch

2 MV Borcos 13 Mooring Launch

3 MV Borcos 21 Standby/Safety



6 MV Borcos 118 Fast Crew Boat

7 MV Borcos Baru Tug Boat

8 MV Berkat Laju Utility

9 MV Borcos Tegas Utility

10 MV Borcos Taqwa Utility

11 MV Borcos Tariq 1 Utility

12 MV Borcos Basma 1 Flat top dumb barge

13 MV Borcos Fateh Utility

14 MV Borcos Fadel Utility

15 MV Borcos Sabhan 1 GP Vehicle



18 MV Borcos Sabhan 4 Standby Utility

19 MV Borcos Firdaus 1 Utility









28 MV Borcos Tasneem 1 AHTS

29 MV Borcos Tasneem 3 AHTS 30 MV Borcos Tasneem 4 AHTS 31 MV Borcos Tasneem 5 AHTS 32 MV Borcos Tasneem 6 AHTS Delivered in Jul-FY10

33 MV Borcos Tasneem 7 AHTS Delivered in Aug-FY10

34 MV Borcos Tasneem 8 AHTS Delivered Feb- FY10

35 MV Borcos Tasneem 9 AHTS Delivered March –FY10

Newbuilds Vessel Type Tentative Delivery Date

36 MV Borcos Thahirah 1 OSV Due mid-2011

37 MV Borcos Thahirah 2 OSV Due mid-2011

Source: Borcos Website



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♦ Borcos buy, backed by net profit guarantee… .. The buy was backed by a RM65m profit guarantee (around

RM26m associate earnings to Dayang) for FY10 and a share clawback agreement in the case of an equity

shareholding dilution with the conversion of Borcos’ preference shares. Should the company fail to hit the

agreed-upon target a compensation payout to the max of RM6m is triggered. This will be written-down from

Dayang’s investment-in-associate in the company’s balance sheet.

♦ … but associate is likely to disappoint. Management mentioned that Borcos could miss the RM65m target

set, as it encountered late delivery of new vessels (Borcos Tasneem 6, 7, 8 and 9) during the year, and has

guided a reduced net profit of RM20-40m for FY10 and FY11 respectively. However, they also mentioned thatthere is a possibility that net profit could still meet the RM60m level should they be successful in recognising

some deferred tax write-backs earned from a previous tax provision for their vessels. To-date, management is

unable to confirm if the tax write-back will occur within the year.

Industry Outlook

♦ Oil and gas sector outlook neutral for now. In our August stockwatch, we mentioned that we were still

neutral on the sector, despite the heavy news flow in the market thus far. Our main concerns were: 1) the lack of

exploration-related jobs in the near term; 2) rising competition for contracts among asset owners and equipment

manufacturers after the aggressive capacity expansions in 2007-08; and 3) the spotlight on safety standards,

which could raise the specifications (and costs) for offshore installations and thus affect the risk-reward

assessment for new projects. Our reservations proved true during our 2QFY10 results reviews when three of the

companies under our coverage (Wah Seong, KNM and Petra Perdana) came below our expectations mainly due to

the first concern we listed above.

♦ Major oil and gas awards soon? Despite our present conservative stance, we admit there is a high likelihood of

major contract awards towards the end of FY10 especially for brownfield services as Petronas’ focus turns to

rejuvenating existing domestic fields via enhanced oil recovery (EOR) techniques and as about half of Malaysian

offshore production platforms are more than 20 years old and need major refurbishment. Besides the RM3.7bn

worth of contracts mentioned above (refer to Table 3), other major projects we have heard off thus far are: 1)

Exxonmobil’s EOR project for the Tapis field; 2) ammonia and urea plant in Kimanis, Sabah; 3) expansion of

Petronas’ Melaka refinery complex; and 4) proposed LNG regassification terminal in Melaka.

♦ Brighter outlook in the long term. We remain bullish on the longer-term outlook for the sector as global

demand recovers. Moreover, with the oil and gas sector being one of the twelve Malaysian National Key Economic

Areas (NKEA) it will get ample attention going forth. The Government has mentioned that it hopes to see an

incremental gross national income (GNI) of RM131.5bn from the oil, gas and energy sectors and looks to some

RM271bn of investment primarily sourced from the private sector (51.7%) over the next decade to enable the

sector to perform as such.

Figure 3: Historical Petronas Capex Expenditure

-

5.0

10.0

15.0

20.0

25.0

30.0

FY2006 FY2007 FY2008 FY2009 FY2010

FYE

Domestic

International

Source: Petronas



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Financial Analysis

♦ So far so good. Net earnings have grown steadily since FY05 and the company has chartered a four-year net

profit CAGR of around 18.9% on the back of increasing contract wins. Worth noting is that the company has

managed to sustain both its GP and net margins at around 40% and 20% respectively signalling that the

continual growth has not been at the expense of deterioration in operational management.

Figure 4: Historical Gross Profit and Net P rofit Margins

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

2005A 2006A 2007A 2008A 2009A

FYE

Net M argins GP M argins

Source: Company

♦ A relatively healthy balance sheet. Dayang has traditionally been relatively debt-free as it is a pretty

conservative company. For FY07-08 it had a net cash position, but it geared up in FY09 because of the Borcos

acquisition (net gearing ratio rose to 0.2x). As at 2QFY10, Dayang’s net gearing ratio improved to 0.1x. Internal

targets are to keep the company’s net gearing ratio below the 1.0x mark. However, we believe it is unlikely that

the debt levels will reach such heights unless the company undertakes a sizeable acquisition.

♦ Improved 2HFY10 guided for. Dayang recorded an acceptable RM35.6m operating profit for 1HFY10 (+2.2%

from FY09 operating profit of RM35.6m) as its topside maintenance operations continued to uphold earnings

momentum. However, contributions from its associate – Borcos were weak at only RM1.8m as the company

recognised losses in 2QFY10. This was attributable to reasons we had mentioned above i.e. the late delivery of

four 5k-bhp vessels. Management has guided for a better 2HFY10 as they foresee contributions from the topside

maintenance projects secured in 1HFY10 to trickle in. The four new vessels have also been chartered out (albeit

mainly on spot terms) as at 2HFY10. In regards to Borcos earnings, management guided a significant

improvement only in FY11. As at 2QFY10 net earnings achieved 42% of consensus net profit estimates of

RM65.2m.

Table 6: 2QFY10 Quarterly Results Announcement

Q2FY09 Q1FY10 Q2FY10 QoQ YoY 6MFY09 6MFY10 YoY

Revenue 63.2 43.0 56.5 31.2 (10.6) 108.3 99.5 (8.1)

Operating Profit 21.3 15.6 20.0 28.2 (5.8) 34.9 35.6 2.2

Finance costs (0.0) (1.5) (1.5) 2.3 nm (0.1) (2.9) nm

Share of Associates - 2.1 (0.3) (113.2) nm - 1.8 nm

Profit before taxation 21.2 16.2 18.3 12.5 (14.0) 34.8 34.5 (0.8)

Income tax expense (5.1) (3.2) (3.9) 20.2 (24.1) (7.5) (7.1) (6.4)

Profit for the period 16.2 13.0 14.4 10.6 (10.8) 27.2 27.4 0.7

Margins ppts ppts ppts

Operating Profit 33.6 36.3 35.4 (0.8) 1.8 32.2 35.8 3.6

Profit before taxation 33.6 37.7 32.3 (5.4) (1.3) 32.2 34.6 2.5

Profit for the period 25.6 30.3 25.5 (4.7) (0.1) 25.2 27.6 2.3

Source: Company 2QFY10 quarterly results announcement



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Investment case

♦ Competitors many, but few are peers. While there are many offshore maintenance and hook-up and

commissioning players in the Malaysian space, only four are considered notable competitors: Kencana Petroleum,

Shapadu Energy (subsidiary of Sapuracrest Petroleum), Sarku Engineering and Petra Energy. Previously there

was also Vastalux Energy but since its suspension of licence by Petronas Bhd in early FY10, it has been little

threat to Dayang. The small number of notable players bodes well for Dayang as it ensures a larger slice of the

pie for Dayang.

♦ Premium margins. Dayang has been consistently churning out net margins of above 20%, double that of its

industry peers like Petra Energy, Kencana Petroleum and Sapuracrest which typically commands net margins at

or below the 10% mark. Management mentioned that the better margins are due to: 1) management’s

experience in contract pricing and managing costs (via utilising their own workboats instead of relying on third-

party charters); 2) strong relationship with suppliers, thus favourable pricing for materials; and 3) “good-pay-

master” reputation that promotes productivity of their staff.

Figure 5: Historical Revenue and Net Margins

0.0

50.0

100.0

150.0

200.0

250.0

2005A 2006A 2007A 2008A 2009A

FYE

R M ' m

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

%

Revenue

Normalised Net Core Pro fit

Source: Company

♦ Potential for order book replenishment is high. As mentioned, given that the company has few notable peers

and it also has a long-standing track record in the maintenance and rejuvenation industry, we expect their

chances in securing part of the significant tender book (refer to Table 3) to be high. Assuming a conservative

30% success rate for the Petronas Carigali Topside Structural Maintenance Contract in Sarawak, Sabah and

Peninsular Malaysia, and a 20% success-rate for the Hook-up & Commissioning Umbrella Contract, Dayang could

be set to win around RM910m worth of contracts, 0.8x of their current order book.

♦ Earnings lift from Borcos venture. Although Borcos is now facing some operational headwinds, there is

potential for Dayang’s earnings to scale new heights. Even at our conservative forecasts of RM8-18m for FY10-12

from Borcos, it already makes up 15.3-22% of Dayang’s forward earnings. Based on our sensitivity analysis,

should the associate’s FY11 earnings meet management’s guided net profit of RM40m and assuming further net

profit of RM60m for FY12, Dayang’s FY11-12 net profit would be lifted by 2.3-6.2% to RM72.3m and RM85.5m,

from our current RM70.6m and RM80.5m. It would then contribute 22.1-28.1% of Dayang’s earnings.

♦ Sights on regional expansion. Moves to expand the company’s regional presence has also been effected, and

the company’s most recent tie-up (in FY09) was with Brunei Alpha One Engineering Services to garner contracts

from Brunei Shell and Total Elf. For now the company has already spearheaded their entrance to the Brunei

market via the charter of their workboat Dayang Zamrud.

Forecasts

♦ Forward earnings to be spurred by topside maintenance earnings. Given the current order book of around

RM1bn and a burn-rate of around RM200-300m p.a., Dayang’s revenues are guaranteed for at least the next 3

years. We forecast FY10-12 revenue for the topside maintenance division to be RM240-320m; this implies a



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replenishment rate of around RM100m for FY12 which we view as easily achievable for Dayang. Although we have

forecast around RM45.5m marine charter division earnings p.a., we expect most of it to be internally generated.

External contributions will be from Dayang Zamrud which stands at RM15.5m p.a..

♦ Higher margins from topside maintenance division as well. In terms of margins, we forecast EBIT margins

of 26% for the topside-maintenance division and 23% for marine charter division. Our assumptions will yield

FY10-12 EBIT earnings of RM63.6m, RM79.4m and RM89.8m respectively.

able 3: Borcos Earnings Assumptions

Table 7: Dayang Group Earnings Assumptions

Revenue FY08A FY09A FY10F FY11F FY12F


Marine Charter 42.3 62.7 45.5 45.5 45.5

Equipment Hire 5.0 4.2 3.0 3.0 3.0

Elimination (46.4) (66.2) (30.0) (30.0) (30.0)

Total 181.1 197.0 258.5 298.5 338.5

Margins

Topside Maintenance 29.6% 15.4% 26.0% 26.0% 26.0%

Marine Charter16.9% 30.3% 23.0% 23.0% 23.0%

Source: RHBRI estimates

♦ Borcos: increasing contribution year-on-year. We opt to be conservative at this juncture in regards to

Borcos earnings although there is a likelihood of the company recognising some deferred tax benefits from their

transfer of their vessels. We forecast FY10-12 net earnings to be RM20-45m respectively which will result in

RM8-18m associate contributions for Dayang. Our estimates are below management guidance of RM20-40m net

profit for FY10 and FY11 respectively.QFY10 Quarterly Results AnnouncementY10 rly Resultsouncet

Risks

♦ Highly dependent on domestic contracts and Petronas. Most of Dayang’s earnings are domestically driven,

and it is obvious from the order and tender book (refer to Table 3) that the company is very much reliant on

Petronas contracts. Although this bodes well in the near term, with Petronas’ looking to revitalise the domestic oil

and gas sector, in the long run it also means that the company has little control over its project flows.

♦ Weakness in Borcos earnings going forward. Recall we mentioned that Borcos is likely to miss its RM65m

profit target for FY10 due to late deliveries of four vessels within the year. Although accounting-wise this could be

offset by deferred tax benefits recognised, while we note that its new vessels ( four 5k-bhp AHTS vessels) have

been chartered out on short-term contracts since 2QFY10, any delays in other incoming vessels (two 12k bhp

AHTS vessels) could result in uninspiring earnings accretion to Dayang.

♦ Continued sluggish contract flows. 2009 and 1H2010 has been a tough period for Malaysian oil and gas

service providers as contract flows were extremely sluggish. While flows seem to have picked up in recent times

(the award of the long-awaited Sabah Oil and Gas Terminal (SOGT)) and we are hoping that FY11 will be a better

year, any further delays could have adverse impacts to the domestic players, inclusive of Dayang.

Table 8: Borcos Earnings Assumptions

RM'm FY10F FY11F FY12F

Net profit 20 35 45

40% contribution 8 14 18

Source: RHBRI estimates



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Valuation

♦ Initiate coverage with an Outperform call. We value Dayang Enterprise at RM2.61/share based on FY11 PER

of 13x (in-line with the target PER for Kencana Petroleum and Sapuracrest Petroleum). Our fair value estimate

implies a 26% upside to the stock’s current share price of RM2.07. We like Dayang for its premium net margins

and we believe the company is currently in an industry sweet spot as a reputable brownfield services oil and gas

player. Notwithstanding is the upside potential to net earnings should its associate, Borcos, outperform our

conservative assumptions. Petronas’ focus in developing and rejuvenating the existing domestic fields is sure tolead to more contract flows for Dayang Enterprises.

Table 9. Earnings Forecasts Table 10. Forecast Assumptions

FYE Dec (RMm)FY09 FY10F FY11F FY12F

FYE Dec FY10 FY11 FY12

Turnover 197.0 258.5 298.5 338.5 Revenue

Turnover growth (%) 8.7 31.2 15.5 13.4 Topside Maintenance 240.0 280.0 320.0

Marine Charter 45.5 45.5 45.5

EBIT 52.7 67.5 79.4 89.8 Equipment Hire 3.0 3.0 3.0

EBIT margin (%) 26.7 26.1 26.6 26.5 Elimination (30.0) (30.0) (30.0)

Total 258.5 298.5 338.5

Net Interest (0.3) (5.8) (8.3) (10.8)

Associates - 8.0 14.0 18.0 Margins

EI - - - - Topside Maintenance 26.0% 26.0% 26.0%

Marine Charter 23.0% 23.0% 23.0%

Pretax Profit 52.4 69.7 85.1 97.0

Pretax margin (%) 26.6 27.0 28.5 28.7 Borcos

Tax (7.6) (12.1) (14.5) (16.5) Net Profit 20 35 45

PAT 44.7 57.6 70.6 80.5 40% Contribution to Dayang 8 14 18

Minorities - - - -

Net Profit 44.7 57.6 70.6 80.5

Net Profit margin (%) 22.7 22.3 23.7 23.8

Source: Company data, RHBRI estimates



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Table 11. Balance Sheet And Cashflow Forecasts

Balance Sheet (RMm) FY09 FY10F FY11F FY12F

Non-current assets 326.49 346.96 456.45 531.16

Current assets 138.10 169.00 164.26 201.20

Total assets 464.59 515.96 620.71 732.36

Share capital & Share premium 176.00 176.00 176.00 176.00

Reserves 147.74 187.76 237.20 293.55

Minority interest 1.00 - - -

Dividend 1.00 - - -

Shareholders fund 325.74 363.76 413.20 469.55

Long term liabilities 102.05 102.05 152.05 202.05

Current liabilities 36.80 50.15 55.46 60.77

Cash Flow (RMm) 2009 2010 2011 2012

Operating cash flow 50.2 55.5 80.8 95.4

Investing cash flow (164.0) (35.0) (130.0) (100.0)

Financing cash flow 73.8 (13.7) 28.8 25.9

Source: Company, RHBRI estimates

Chart 1: Dayang Technical View P oint

♦ The share price of Dayang has been trading along

the Uptrend Line (UTL) since last Apr.

♦ Its upward momentum accelerated in late Dec

2009, when it shot up steeply to above the RM2.00

tough resistance level.

♦ But, it wasn’t until in Jun 2010 that the stock

managed to stabilise and traded at above this

tough resistance level.

♦ However, for the past few months, the stock has

been congesting at between RM2.00 and RM2.20

region.

♦ As it stays firmly at above the UTL of RM1.95 and

the RM2.00 level, its uptrend remains strong, in our

view.

♦ With yesterday’s closing at RM2.07, and a small

positive candle as well as the slight improvement

on the momentum indicators, the stock could surgefurther to the RM2.20 all-time high level soon.

♦ If the 10-day SMA cuts above the 40-day SMA on

strong follow-through buying momentum, it will

trigger more upside into the uncharted territory of

above RM2.20.



Page 11 of 11

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Documents

Dayang Enterprise Holdings Berhad : In An Industry Sweet Spot - 22/09/2010