October 27, 2011

Dayang Received Contract Extension Worth RM1.5 Billion from Murphy

KUCHING: Dayang Enterprise Holdings Bhd (Dayang) further solidifies its estimated RM1.5 billion worth order book as it recently received a notice of contract extension from Murphy Production Operations (Murphy) for the provision of topside major maintenance services.

According to OSK Research Sdn Bhd (OSK Research) analyst, Jason Yap, “The contract was estimated to be worth about RM50 million to RM100 million and is on a ‘call-up’ basis. It is made up of work orders, awarded only at the discretion of Murphy.

“The contract period was reportedly from November 2011 to November 2012, with the value of work orders are based on the contracts schedule of rates, giving some volatility to the earnings from the contract,” he added.

According to Yap, Dayang’s orderbook stood at more than RM1.5 billion and would give the company earnings visibility over the next three years as its forecast annual revenue was less than RM0.5 billion. While the company’s peers possessed larger orderbooks due to bigger asset bases, the group’s burn rates were mostly between several months to slightly more than a year.

The analyst told The Borneo Post in an email that Dayang would see more maintenance contracts coming in through its pipeline.

He based his beliefs on recent moves by Petronas and its other production sharing contractors to focus on developing marginal oil fields and reviving existing commercially viable oil fields with oil and gas production potential.

“Concentrating on these two areas provides the fastest means of enhancing the country’s reserve replacement ratio. Hence, we see Dayang as one of the main beneficiaries from Petronas’ shorter term focus,” Yap affirmed.

He then pegged an unchanged fair value of RM2.70 per share for Dayang, picking it as a defensive stock for the oil and gas sector due to its recurring and long term principal business of providing brownfield services.

ECM Libra Capital Sdn Bhd (ECM Libra Research) pegged a target price of RM2.17 per share for the company, unaffected by the contract extension as it had previously factored into account replenishments of up to RM170 million.

“Dayang is attractively priced at current valuation and continues to pay out attractive dividends of up to 10 sen per annum. We characterise the stock as one of the ‘safe’ bets in the sector because of long term contracts and solid margins,” opined the research house.

It also shed light on some changes that might appear ahead for Dayang as it is currently in discussions for potential collaboration with Perdana Petroleum Bhd (Perdana).

ECM Libra Research opined that Dayang should consider purchasing Petra Energy Bhd’s stake currently held by Perdana to gain a near market monopoly of the topside maintenance services, as the business model for the two companies were similar.

Source: The Borneo Post

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