Fundamental Analysis of Dayang Enterprise Holdings Berhad by L. C. Chong https://lcchong.wordpress.com/ https://www.facebook.com/groups/285121298359919/

1. DAYANG
FUNDAMENTAL ANALYSIS
Financial Year 2015 (31 Dec 2015)
21 June 2016
L. C. Chong (http://lcchong.wordpress.com and https://goo.gl/jjkq4P)

2. DISCLAIMER
I am NOT an investment advisor nor a financial advisor, and no information provided
here is to be interpreted as a suggestion to buy or sell securities.
Stock analysis in this presentation may not neutral because I have incorporated my
risk appetite and principles in the analysis.
All figures in MYR and in '000s, except per share data
2

3. DECLARATION OF INTEREST
• At the time of writing, I owned shares of DAYANG.

4. SCOPE
• Figures and ratios are based on the figures reported in Annual Report or the latest
Q4 Quarterly Report (QR)
• Unless there is a need, this analysis will not include financial figures reported in Q1,
Q2 and Q3
• I will provide QR result highlights in my blog
• Valuation is not covered in this analysis
• I will provide valuation in my blog.

5. CHANGES
• 10 Mar 2015 – Update this report with FY15
• 20 Nov 2015 – First write up of DAYANG in PowerPoint format

6. BUSINESS PROFILE

7. BUSINESS PROFILE
• Offshore topside maintenance services, minor fabrication works and offshore hook-
up and commissioning services for oil and gas industry

8. BUSINESS PROFILE (CONT.)
Topside maintenance services
• Provision of offshore topside maintenance services, minor fabrication works and offshore hook-up and
commissioning services for oil and gas industry.
Marine charter
• Chartering of marine vessels and provision of related support services
Equipment hire
• Equipment hire operation

9. TOPSIDE MAJOR MAINTENANCE
(TMM)
• TMM is like a car being serviced at intervals
• Regular maintenances or upgrading works focus on substructures in the main deck,
helideck, pipes, valves, electrical and instrumentations
• As the life of the platform ages, the level of activities increases as well
• Regular maintenances or upgrading works are required to maximise oil recovery
and production from existing and new platforms.

10. TOPSIDE MAJOR MAINTENANCE
(TMM) (CONT.)

11. HOOK UP, CONSTRUCTION AND
COMMISSIONING (HUCC)
• HUCC is like a contractor supplying construction services
• It involves the provision of interconnection and interfacing of systems such as
structures, modules, equipment and commissioning of systems for offshore
platforms
• The contract awarded by client can range from 1 to 5 years and multiple work
orders can be given within that period
• The value of the job order may be different from the initial estimated value as work
orders are based on “call up” basis with no guarantee on value or timing.

12. HOOK UP, CONSTRUCTION AND
COMMISSIONING (HUCC) (CONT.)

13. OWNERSHIP SUMMARY
INSTITUTIONS
30%
CORPORATIONS (PUBLIC)
29%
INDIVIDUALS/INSIDERS
22%
PUBLIC AND OTHER
19%
Position Date: 26 Feb 2016

14. TOP 5 SHAREHOLDERS
Position Date: 26 Feb 2016
Holder Common Stock Held % of Total Shares Outstanding
NAIM HOLDINGS BERHAD 254,921,952 29.1%
KUMPULAN WANG PERSARAAN 83,442,200 9.5%
LEMBAGA TABUNG HAJI 78,026,800 8.9%
SUK KIONG LING 77,368,130 8.8%
YUSOF BIN TENGKU AHMAD SHAHRUDDIN 65,916,675 7.5%

15. OWNERSHIP ANALYSIS
• The group’s largest shareholder is NAIM HOLDINGS BERHAD, with a 29% stake in
the group
• Following large shareholder is Suk Kiong Ling, with a stake of 15.8%
• Institutional funds, such as Kumpulan Wang Persaraan and Lembaga Tabung Haji,
owned 36% of DAYANG.

16. FLEET PORTFOLIO

17. PERDANA’S FLEET PORTFOLIO
Source: Public Investment Bank (26 May 2016)

18. PERDANA’S FLEET PORTFOLIO
(CONT.)
Source: Public Investment Bank (26 May 2016)

19. DAYANG’S FLEET PORTFOLIO
Source: Public Investment Bank (26 May 2016)

20. ECONOMIC MOATS

21. ECONOMIC MOATS
• Cost Advantage (Narrow)
• EBIT margin ranged from 26% to 33% in the past 5 years
• This can be rated as Baa
• Switching Costs (Wide)
• Contracts in O&G sector usually are for long term. Thus, it is unlikely upstream
companies simply switch contractors or suppliers
• Network Effect (Narrow)
• Increasing O&G projects will increase revenue of DAYANG
• Poor oil prices will make upstream companies to cut down their E&P activities.

22. ECONOMIC MOATS (CONT.)
• Intangible Assets (Wide)
• Technical knowledge
• Strong link with local E&P companies
• Efficient Scale (Wide)
• Oligopoly market as controlled by Petronas and Malaysia government

23. ECONOMIC MOATS (CONT.)
17.3%
21.3%
22.5%
20.3%
23.1%
8.4%
9.4%
16.0%
13.7%
6.1% 6.3%
18.4%
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31 2015-12-31
ROIC and CROIC
Avg. Invested Capital Avg. Capex ROIC % CROIC %

24. ECONOMIC MOATS (CONT.)
• ROIC of DAYANG increased from 21.3% (FY11) to 8.4% (FY15)
• Invested capital increased 132% YoY due to additional PPE (RM1,215,715,704) as a result
of business combination
• CROIC increased from 6.3% (FY14) to 18.4% (FY15)
• Invested capital increased 132% YoY due to additional PPE (RM1,215,715,704) as a result
of business combination.

25. FINANCIAL PERFORMANCE

26. SCALE
122,817
146,130
171,896
263,119 263,215
0
50,000
100,000
150,000
200,000
250,000
300,000
2011-12-31 2012-12-31 2013-12-31 2014-12-31 2015-12-31
EBITDA

27. SCALE (CONT.)
690,644 738,419
988,114
1,319,811
3,300,832
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2011-12-31 2012-12-31 2013-12-31 2014-12-31 2015-12-31
Total Assets
Goodwill: RM755,250,174
Intangible Assets: RM42,945,737
PPE: RM1,853,733,229

28. SCALE (CONT.)
• EBITDA increased from 122,817 (FY11) to 263,215 (FY15)
• Total Assets increased from 690,644 (FY11) to 3,300,832 (FY15)
• Additional PPE (RM1,215,715,704) as a result of business combination
• Larger scale can be an indicator for a company’s ability to withstand industry cycles
and competitive forces
• Strong ability to obtain financing to undertake major capital projects.

29. PROFITABILITY
28.0%
31.6%
26.5%
25.3%
20.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2011-12-31 2012-12-31 2013-12-31 2014-12-31 2015-12-31
EBIT Margin %

30. PROFITABILITY (CONT.)
• EBIT captures the impact of depreciation on the fixed asset base and the need to
invest in a company’s equipment
• EBIT margin of DAYANG is slightly volatile, but it is in downtrend
• EBIT margin was 20.0% in FY14, which can rated as Baa.

31. PROFITABILITY (CONT.)
16.0% 15.5%
17.1%
14.8%
16.8%
4.7%
0.0%
5.0%
10.0%
15.0%
20.0%
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31 2015-12-31
EBIT/Assets

32. PROFITABILITY (CONT.)
• To measure capital efficiency and return on investment, the ratio of EBIT to total
assets is used
• A higher efficiency ratio indicates an improved ability to maintain investment levels in an
oilfield services company’s fleet and equipment which often is an important
differentiating factor for customers
• EBIT to total assets was 7.9% in FY15, which can rated as Ba
• Additional PPE (RM1,215,715,704) as a result of business combination.

33. PROFITABILITY (CONT.)
2011 2012 2013 2014 2015
Marine charter 40,853,424 17,511,862 17,511,862 16,474,695 74,940,446
Topside maintenance services 360,362,057 535,122,410 535,122,410 860,395,047 703,636,577
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
800,000,000
900,000,000
1,000,000,000
Revenue by Operating Segment

34. LEVERAGE & COVERAGE
0.67 x 0.46 x
0.71 x 0.58 x
6.86 x
0.00 x
1.00 x
2.00 x
3.00 x
4.00 x
5.00 x
6.00 x
7.00 x
8.00 x
2011-12-31 2012-12-31 2013-12-31 2014-12-31 2015-12-31
Debt / EBITDA

35. LEVERAGE & COVERAGE (CONT.)
23.68 x
36.52 x
46.31 x
36.59 x
4.32 x
0.00 x
10.00 x
20.00 x
30.00 x
40.00 x
50.00 x
2011-12-31 2012-12-31 2013-12-31 2014-12-31 2015-12-31
EBITDA/Interest

36. LEVERAGE & COVERAGE (CONT.)
• DAYANG’s financial leverage are healthy
• Debt/EBITDA – 6.86x (FY15) (Caa)
• EBITDA/Interest – 4.32x (FY15) (Ba).

37. ORDER BOOK
• 26 Apr 2016 - Inclusive of jobs from Perdana Petroleum, Dayang has a total
orderbook of RM3.7b with a burn-rate until 2018. Its tenderbook stands at
approximately RM300m.
Source: RHB 18 Mar 2015

38. UNUSUAL ITEMS
• Other operating income relates to non-cash gain arose from re-measurement of the
equity interest held in Perdana Petroleum Berhad (“PPB”) to fair value of
RM84,938,215 as well as reclassification of other reserves arose from equity interest
in PPB of RM24,036,945 to profit or loss as a result of reclassification of investment
in PPB from an equity-accounted associate to a subsidiary on 24 July 2015 (see Note
6). = RM108,975,161
• Net foreign exchange gain/loss = RM4,501,126 - RM12,196,262 = -RM7695136
• Property, plant and equipment written off = -RM36,625,175
• This reduced invested capital.

39. GROWTH DRIVERS

40. GROWTH DRIVERS
• 26 Apr 2015 - First contract win for 2016 worth between RM25-42m. The two-year
contract (with a 1-year extension option) is for the provision of topside maintenance
services for Kebabangan Petroleum Operating Company Sdn Bhd (KPOC).
• 4 Jun 2015 – DAYANG has been awarded a two-year contract for the Provision of
Facilities Improvement Project (FIP) by Petronas Carigali Sdn Bhd worth
approximately RM250 million
• 14 May 2015 – Analysts are of the view that Dayang will be better positioned to win
bigger jobs with the likely takeover of Perdana
• The control of Perdana would give Dayang better access to Perdana’s young fleet of 19
vessels, of which 17 are in operation and two are due for delivery in financial year 2016.

41. GROWTH DRIVERS (CONT.)
• 15 Dec 2014 - Dayang has won a RM280 million contract for the provision of major
modification works for the Baram Delta Gas Gathering Project 2 (Bardegg-2) and
Baronia enhanced oil recovery (EOR) development project just off the shore of
Sarawak
• 16 Dec 2014 – The next stage of growth
• The company is already preparing itself for the next stage of growth into the EPCC
segment of the oil and gas industry
• Dayang had already invested RM15m to purchase a new fabrication yard in Labuan and
is planning to invest another RM20-30m in capex for fabrication yard equipments
• Dayang has hired several fabrication designers and engineers in preparation for such
jobs.

42. GROWTH DRIVERS (CONT.)
• 6 May 2013 – Dayang has secured the provision of Hook-up, Commissioning and
Topside Major Services jobs in May 2013 from Murphy Sarawak Oil Co. Ltd worth
RM313.6 million
• 1 Oct 2014 – The current Pan Malaysia hook-up and commissioning projects with
Petronas Carigali, Shell Malaysia, Murphy and Nippon are progressing very well
(evident from 2Q14 results)
• There are currently seven vessels (five work barges and two work boats) mobilised for
the Shell HUC since March 2014
• The company is expecting the high activity level to sustain into 2015.

43. GROWTH DRIVERS (CONT.)
Source: iCapital

44. GROWTH DRIVERS (CONT.)
• Many of the offshore platforms in Malaysia are over 20 years of age and urgently
needs upgrading
• These HUCC and topside maintenance contracts are normally recurring every 5 years
• Given Dayang’s strong track record and execution abilities, Dayang potentially will
continue be a winner and is emerging as a power house offshore HUCC player in a
region of aging O&G infrastructures
• Margin expansion from new HUCC/TM work orders.

45. ISSUES/RISKS/CHALLENGES

46. ISSUES/RISKS/CHALLENGES
• A downturn in the oil & gas sector that could result in delays in contract rollouts
• Political risk and Execution risk
• Unsure of international growth prospects
• Difficulties in sourcing O&G engineering talent
• Unable to charter suitable and/or sufficient vessels to cater for its massive
TMM/HUC projects
• Insufficient capacity to secure more attractive projects.

47. ISSUES/RISKS/CHALLENGES (CONT.)
• Lower margins and potentially lower-than-expected mobilisation from some of the
Pan-Malaysian HUC players
• 18 Mar 2015 – HUCC contracts are proceeding normally although it is
experiencing slow work orders. Maintenance work orders are likely to pick up again
due to the need to maintain safety and production efficiency standards
• Perdana Petroleum, now a subsidiary of Dayang, contributed an accumulated loss of
approximately -RM101m due to low vessel utilisation rates and low profit margins
from works executed in FY15.

48. ISSUES/RISKS/CHALLENGES (CONT.)
• Concentrated customer risks
• The following are the major customers individually accounting for 10% or more of the
group revenue:
• Customer A: RM353,798,318 (50%)
• Customer B: RM314,989,780 (45%)

49. SEASONALITY
• Seasonality due to weather is not foreseen to affect the Group’s vessel chartering
operations. However, the offshore topside maintenance operations is normally
affected by bad weather at the beginning and the end of the year and this factor
has been taken into consideration in the Group’s annual business plan.

50. GOING FORWARD

51. GOING FORWARD
• DAYANG has good reputation of being a conservative and risk-averse company
• 1 Mar 2016 - Inclusive of jobs from Perdana Petroleum, Dayang has a total
orderbook of RM3.8b with a burn-rate until 2018. Its tenderbook stands at
approximately RM350m
• No dividend payout in FY15
• I will continue to hold and accumulate this stock.