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Tuesday, August 20, 2013

Daya - Norway contract win to be the game-changer (Hwang)

Daya Materials; Not rated; RM0.35
Fair value: RM0.45; DAYA MK

Norway contract win to be the game-changer

DAYA announced last night that it has entered into a charter party contract with Technip for the provision of offshore subsea construction vessel as well as a range of offshore services on a long-term charter basis for the North Sea and North Atlantic Regions. The 7-year contract, commencing in August 2013, entails 100-175 working days/year. The contract award is estimated to be worth RM250m-440m, depending on the utilistaion.
DAYA will deploy its DP2 subsea construction vessel, Siem Daya 1 (chartered from Oslo-listed Siem Offshore under a 7-year firm charter arrrangement) for the Technip contract. We are upbeat on the longterm charter as it will underpin Daya’s earnings visibility until 2020 given its impressive ~RM1.6bn order book (5.8x FY12 revenue) currently. This will also stamp its mark as one of the first Malaysian offshore service providers to secure contracts in the highly competitive market in Norway.
While the charter award will be utilising Siem Daya 1 for 7 years, DAYA could still bid for other short-term jobs in the North Sea as Technip will only be using up to 175 days/year, which will ultimately lead to higher profitability for DAYA. We raised our FY13 earnings by 7% in view of the earlier-than-expected contract commencement date for its flagship vessel.
DAYA remains a bargain given its exponential 3-year earnings CAGR of 37% and compelling valuation of 9.6x FY14 PE (vs peer average of 13x). We reiterate our fair value of RM0.45, based on 12x FY14 EPS.

We continue to like the company for its strong earnings visibility, healthy balance sheet and entrepreneurial management.

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