DAYANG (FV RM2.26 - BUY) 1QFY12 Results Review: Surprisingly Below Expectations!

Dayang’s 1QFY12 results were below expectations. We had expected that the company’s performance would improve after it  has gone  through the  learning curve  for  project delivery and  secured more lucrative jobs during the quarter. Since that did not materialise, we are tweaking down our FY12 earnings by 4%. Maintain Buy with a lower fair value of RM2.26.

Below estimates. Dayang’s 1QFY12 results were below consensus and our expectations, making up 16% of consensus and our FY12 forecasts respectively. Although we had earlier anticipated that its 1Q results would not be as strong as  the numbers in subsequent quarters owing to the monsoon season as well as slower flow of new contracts  since it is only the start of the  new  calendar year, we had hoped that Dayang would do better than what was just reported for 1QFY12. Its 1QFY12 net profit of RM15.7m, although up 24.8% q-o-q,  was  still slightly  weaker  by 5.5%  y-o-y. Earlier, we had expected to see some improvement, especially after the company has gone through the learning curve in terms of project delivery, as well secured more business compared to a year ago since the bulk of its jobs are driven by Petronas, which has been increasing its focus in the local market following the interruption in production in Sudan. As we had held the view that there may not be enough capacity going forward, we had thought the oil majors would have locked in Dayang’s services in a big way but as it turned out, we had been wrong on this score.

2012  still  a year of brownfield services  tenders. This is because we understand that most of the existing brownfield services projects are due for renewal this year, especially those from Petronas Carigali, Shell, ExxonMobil and other PSC contractors. As for Dayang, we understand that the company would be tendering for jobs worth RM7.0bn in total. Assuming a success rate of 20%, the company should be able to replenish its entire existing orderbook of RM1.4m.

Tweaking down our FY12 earnings forecast by 4%. Our downgrade is in line with the poorer-than-expected 1QFY12 results, as well as possibly slower-than-expected performance from the coming quarters due to the European economic crisis.

Maintain Buy. We are tweaking down our fair value for Dayang to RM2.26 (previously RM2.34), based on the existing PER of 13x FY12 EPS, following our earnings downgrade. Despite our downgrade, we continue to like Dayang’s  solid business model, which provides the company with recurring income and a constant cash flow.

Source: OSK