We came away feeling slightly positive from a private meeting with Dayang as the group has indicated its plans on: (i) turning around its 63.7%-owned Perdana Petroleum in FY22 (which has always been a drag for the past few years) and (ii) a better job win and execution prospects in FY22 – as guided from the Petronas Activity Outlook 2022 and due to lesser Covid -19 related headwinds. However, we expect Dayang’s performance for the next quarter (1Q22) to be subdued due to the monsoon season, affecting both its topside and OSV divisions. No change to our FY22-23F earnings estimates. Maintain HOLD with an unchanged SOP-derived TP of RM0.89, where we value its offshore division at 15x P/E and 0.75x P/B for its OSV segment.

Perdana fleet utilisation expected to improve in FY22. The group has guided that it plans to turnaround its 63.7%-owned Perdana Petroleum this year as it aims to hit a higher blended fleet utilisation rate of 60-65% in FY22. However, we believe that things would only pick up in 2Q22 for Perdana as the group will still be pretty much affected by the monsoon season and other headwinds in 1Q22. The group is targeting a blended fleet utilisation rate of c.35% in 1Q22 and c.80% in 2Q22. We note that Perdana’s fleet utilisation stood at 49% in FY21 and 53% in FY20.

Less Covid-19 related headwinds in FY22. Throughout the meeting, the group has reiterated that Covid-19 served as a major headwind which gave rise to its weak performance in FY20-21 due to manpower/labour issues. Dayang has guided that FY22 would be a much better year in regards to this due to: (i) less stringent Covid-19 SOPs (which allows for lower accommodation expenses and testing requirements); and (ii) shorter crew turnaround days (from lower quarantine time). The group has highlighted its current outstanding orderbook to be at RM1.9bn, which will provide earnings visibility until end-FY23 and has a tenderbook of c.RM500-600m.

Petronas Activity Outlook 2022 indicates a better FY22 for OSV, HUC and MCM. The outlook for OSVs are expected to be slightly better in 2022 as there are a total of 336 support vessels (Production: 138, Drilling: 198) expected to be chartered throughout the year as compared to 289 support vessels (Production: 151, Drilling: 138) in 2021. Petronas has guided that there will be consistent demand for vessels supporting production operation over the next three years. Meanwhile, higher HUC and MCM man-hours are also expected for 2022 (HUC: 6.3, MCM: 11.5) as compared to 2021 (HUC: 4.7, MCM: 8.5).

Forecast. We make no changes to our FY22-23F earnings estimates.

Maintain HOLD, TP of RM0.89. We maintain our HOLD recommendation on Dayang with an unchanged SOP-derived TP of RM0.89, where we value its offshore division at 15x P/E and 0.75x P/B for its OSV segment. While we appreciate the group’s initiative and efforts to turnaround its 63.7%-owned Perdana Petroleum, we think that this strategy will require s ome time to accomplish. Given the nature of the business to be seasonally impacted by the bad and rainy seasons, we expect Dayang’s performance for the next quarter (1Q22) to be soft due to the ongoing monsoon season. However, we expect the group’s performance to pick up from 2QFY22 onwards.

Source: Hong Leong Investment Bank Research - 4 Apr 2022