Dayang ... Apr10

Petronas Carigali is expected to call a tender for its offshore topside maintenance services in the next few months. Early estimates put the contract values for both Peninsular Malaysia (PMO) and Sarawak and Sabah (SKO & SBO) operations at around RM1.2 billion.

Dayang is currently the incumbent for the SKO & SBO while Vastalux holds the PMO operations.

Dayang is well poised to secure the contracts (especially the SKO & SBO) given its long-standing track record as well as ownership of a fleet of workboats which are assets required for the job.

Typically, a maintenance contract value tends to be higher than the original award as additional works apart from those stipulated may need to be carried out.

Similarly, the eventual value of the Sarawak Shell Bhd/Sabah Shell Petroleum Co Ltd (SSB/SSPC) contract could be higher than the RM400 million secured, or 1.25 times of the original value as a rule of thumb, translating into about RM500 million (FY10F contract wins assumption).

Meanwhile, it is understand that Borcos may make a provision for previous years’ taxation owing from vessels’ charter income. However, this is pending discussion with the auditors. Estimate potential downside of 6% in earnings could be made up by stronger contribution from Dayang’s oil and gas operations.

Dayang’s valuation remains undemanding at FY11F price-to-earnings (PE) and price-to-book-value (PBV) of 8.3 times and 1.6 times, respectively.

Dayang offers strong growth (FY09-FY11F net profit compound annual growth rate of 31.3%) and is a good proxy to oil and gas contract newsflow.