KUALA LUMPUR: RHB Research is positive on Dayang Enterprise Sdn Bhd's contract extension from Petronas Carigali Sdn Bhd (PCSB) as it ensures the sustainability of job flow until the end of 2023.
Dayang was awarded a contract amendment and extension for providing offshore maintenance, construction and modification (MCM) services from PCSB.
The value of the contract is based on work orders issued by PCSB throughout the extended contract duration, from September 20, 2022, to December 31, 2023.
"Although the value of the contract was not known, as it depends on work orders taken, we expect MCM work orders to ramp up next year with Petronas' spending increase.
"Meanwhile, we understand that there is an upward adjustment of more than 20 per cent in service rates to cater for rising material and equipment costs and the cost of doing business.
"Assuming MCM work orders are worth RM50-60 million per month, total estimated work orders could come up to RM750-900 million," said its analyst Sean Lim.
He said Dayang's orderbook size should remain largely unchanged at RM1.7 billion, as the previously estimated uncalled work orders will likely materialise under the contract extension.
Following the rate revision, the firm still expected margin improvement in the financial year 2023 (FY23).
"At the same time, we also understand that Dayang is negotiating for better rates to be applied to integrated hook-up and commissioning jobs (HUC), which could further protect margins from rising costs, as mentioned earlier," said Lim.
He added that as an experienced upstream maintenance player, Dayang is set to benefit from the five-year contract renewal cycle starting next year.
RHB maintained 'Buy' on the stock with an unchanged target price of RM1.53.