Dayang well-positioned to benefit from MCM contract award
20 January 2017
KUCHING: Dayang Enterprise Holdings Bhd (Dayang) is well-positioned to benefit from a fresh round of the maintenance, construction and modification (MCM) contract from Petroliam Nasional Bhd (Petronas).
Following a company briefing, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) yesterday believed the oil and gas (O&G) company could be one of the potential beneficiaries to win the Sarawak portion of the MCM contract.
Dayang stood a good chance to secure some of the works, it said, as the company has demonstrated a good track record in the previous job and is the incumbent for the Sarawak topside maintenance contract.
To note, Dayang had won the RM800 million topside maintenance services contract from Petronas and the O&G company’s total revenue recognised was widened to RM1.4 billion due to additional work scope allocated.
Additionally, the research firm gathered that the new round of MCM contract is split into six packages and the Sarawak’s portion is the biggest, which is estimated at RM1.5 billion. It noted Petronas’ five-year MCM contract, slated to be awarded the latest by the second quarter of 2017 (2Q17), is estimated to be at RM5-RM6 billion.
Besides that, Kenanga Research said Dayang is also bidding for Petronas’ new round of marine vessels contracts, which include several short-to-medium-term jobs. Petronas might shortlist five to six licensed O&G players who qualified for technical specifications given that it is an umbrella contract. It could be awarded by 1Q17.
Meanwhile, Kenanga Research gathered that Dayang’s business is on track to recovery, for both its offshore support vessel (OSV) and topside maintenance segments (TMS).
Dayang is targeting to improve Perdana Petroleum Bhd’s 17 vessels utilisation to an average of 70 per cent – a breakeven level from 60 per cent in financial year 2016 (FY16).
Meanwhile, Kenanga Research noted as of third quarter of 2016 (3Q16) ended September 2016, Dayang’s net gearing stood at 1.2 times, comprising RM1.7 billion of total borrowings and RM227.6 million of cash and bank balances.
The company management is planning to dispose off one to two vessels to raise more cash.
In the meantime, Kenanga Research made no changes to its earnings forecast for Dayang’s FY16-FY17 numbers as it believed Dayang should be able to secure more contracts in the near-term resulting in sustainable work orders. Apart from that, the research firm did not foresee significant impairment on the company’s fleets in upcoming 4Q16 results announcement due in February 2017.
As a whole, Kenanga Research maintained its bullish outlook for the company, valuing the company’s share price with a fair value of RM1.17 per share pegged to 0.8 times FY17 price-to-book-value (PBV).