DAYANG: Earnings Miss Expectations Amid Operational Challenges, Target Price Adjusted

A recent investment bank research report indicates that the 9M25 core net profit significantly missed expectations, primarily due to operational headwinds and a slowdown in key activities. The core net profit for the period stood at RM137 million, marking a substantial 46% year-on-year decline and falling short of both full-year forecasts (73%) and consensus estimates (78%).

Performance Review

The softer performance was largely attributed to the monsoon season, which exerted pressure on both revenue and margins. Overall revenue saw a 37% year-on-year reduction to RM727 million. Contributing factors included a slowdown in topside maintenance services stemming from fewer work orders, a notable drop in vessel utilization (57% compared to 76% in 9M24) due to project commencement delays, scheduled dry-docking, and the early off-hire of certain accommodation work boats. Additionally, reduced third-party vessel chartering contributed to the decline. The EBITDA margin also experienced a 2-percentage point slip due to weaker operating leverage.

The third quarter of 2025 (3Q25) continued to reflect these challenges, with revenue declining 32% year-on-year. This was driven by delays in major contract commencements, lower vessel utilisation (80% vs 85% in 3Q24), and a softer third-party vessel chartering environment amidst sluggish domestic oil and gas activities. Topside maintenance services revenue alone fell 45% year-on-year, while vessel chartering decreased by 9% year-on-year. Despite these revenue pressures, the 3Q25 EBITDA margin saw a 4-percentage point improvement to 47%, a positive development attributed to a more favorable revenue mix, with the marine charter segment accounting for 62% of revenue compared to 46% in 3Q24.

Future Outlook and Recommendation

In response to the current operational environment, the investment bank has revised down its EPS forecasts for 2025-27E by 7-9%, factoring in fewer work orders and lowered vessel utilisation assumptions. While 2025E earnings are projected to decline by 45% as the company navigates a transition year, the strong order backlog of RM4.9 billion provides a robust foundation for recovery, with earnings visibility expected to improve from 2026E onwards.

The investment bank has maintained its BUY rating, albeit with a lowered 12-month target price of RM2.01 (from RM2.21), based on an unchanged 10x 2026E PER. The current forward PE valuation of 8x suggests that the market has largely priced in the earnings weakness, offering an attractive risk-reward profile for investors.

Key risks to the BUY recommendation include unforeseen delays in work orders, a sharp decline in charter rates, and higher-than-expected operating costs.