Dayang’s OSV business is expected to go through a slow 1Q21 before picking up from 2Q21 onwards from the adverse weather impact and Covid-19 cases which has hit Miri in 1Q21.
KUCHING: Dayang Enterprise Holdings Bhd (Dayang) is expected to record improvements in its second quarter of 2021 (2Q21) performance, driven by its hook-up and commissioning (HUC) business.
“There has been a material pickup in activity in 1Q21 as compared to 4Q20 from the procurement of materials for its HUC business.
“However, most of its contracted assets are only expected to be converted into revenue in 2Q21. Hence, we view that the recovery will only material in 2Q21,” the research team at Hong Leong Investment Bank Bhd (HLIB Research) said in an update report yesterday.
“Overall, we expect a decent year-on-year (y-o-y) growth in the financial year 2021 (FY21) with 1Q21 being the weakest quarter of FY21,” it added.
It noted that the increase in work activity for Dayang this year is expected to result in better margins due to its operating leverage.
It also pointed out that its offshore vessel (OSV) business is expected to go through a slow 1Q21 before picking up from 2Q21 onwards from the adverse weather impact and Covid-19 cases which has hit Miri in 1Q21.
Meanwhile, it noted that Dayang will be submitting bids for two AHTS (Perdana) worth RM70 million and RM80 million each, two landing craft for Dayang Marine (RM15 million each) from Petronas.
“We believe that Dayang is at the lower end of some of the projects bidded, which makes it very possible for Dayang to win these contracts,” HLIB Research said.
“The role of Dayang is to enable Petronas to reduce their capex. The contract will be based on daily fixed cash flow payments with a ceiling price of RM39,000 per day for seven years,” it added.
The research team further explained that Dayang intends to raise the funds required for the aforementioned project from commercial banks, as the commercial banks are offering cheaper rates at around four to 4.25 per cent per annum as compared to development banks which are offering an interest rate of about circa six per cent per annum.
“The AHTS projects are expected to generate a revenue of RM14 million per year with operational cost of RM4 million. We expect Dayang to breakeven on a net profit basis in the first two to three years of its contract before recording a positive net profit thereafter,” it said.
Aside from that, HLIB Research said Dayang plans to allocate a capital expenditure (capex) of RM150 million (67 per cent debt,33 per cent equity) for FY21, where about circa RM20 million (equity) will be allocated to its new yard in Bintulu for equipment.
The yard is slated to be completed by end of august or early September 2021. The completion of the yard is expected to result in 10 per cent cost savings for every project.
“The cost savings would mainly come from the streamlining of the procurement process. The bulk of the remaining capex (circa RM120 million) will be spent on Project Safinah,” it said.
All in, HLIB Research maintained a ‘buy’ call on the stock as it believed that Dayang should see a decent recovery in terms of its MCM and i-HUC work activity.
“Moreover, its cost optimisation measures carried out in FY20, should result in higher profit margins for the company going forward,” it added.