Koon Yew Yin 15 Jan 2020
On 13 Jan 2020 Dayang announced that it has received 2 new contracts. The following is from Maybank IB Retail Research quote:
Dayang was awarded two 4-year contracts by Petronas Carigali S/B to provide integrated hook-up and commissioning services. No value was given as it is likely on a “call-out” basis whereby work orders will be awarded at clients’ discretion.
This news will be well received by the investment community. Having delivered its best 3Q19 results in its history with 9M19 PATMI surpassing FY18’s core net profit, Dayang is set to end FY19 stronger. Note that vessel utilisation was at 91% in 3Q19.
With an estimated order book at circa MYR2.5b, albeit on call-out contracts, Dayang’s has built a strong jobs pipeline. The order book is equivalent to about 2.7x its FY18 revenue. And this underpins the street’s 6.9% 2-year EPS CAGR for FY18-20.
There are basically 3 types of contracts
Many people including my old friend, a retired senior banker wanted to know why the value of contract is not stated.
One of the subjects in my civil engineering course was quantity surveying which is different from land surveying. Let me explain it for all my readers. There are basically 3 different types of contracts.
1. Bill of quantities contract.
This type of contract is used for large scale projects, like a multi storey building or a long highway including many various types of infrastructures, like bridges, culverts, etc where the exact quantities of work have to be measured for payment after project completion. The payment will be based on the rates agreed in the contract.
2. Lump sum contract
This type of contract is often used for small construction, like building a new garage, a new toilet etc. Payment will be based on the agreed sum of the completed work as shown in the design drawings of the Architect or Engineer.
3. Schedule of rates contract
In Dayang’s case, the total quantity of work is not certain for each type, which oil rig and location of the oil rig. Payment will be made based of the agreed schedule of agreed rates which includes the followings:
a. mobilization cost for each contract. This includes preparation, getting additional worker and materials.
b. Transport of workers and material to each oil rig.
c. scale and paint per square meter
d. remove and install rates for various diameter of steel cable
etc etc etc
Why Dayang is given more maintenance contracts?
Even if the oil price dropped drastically, Petronas will continue to pump oil because it has already paid for the oil rigs and Dayang will be given more maintenance contracts. If you google you can find out that the average cost of an off shore oil rig is US$ 650 million. It is like a floating city.
Dayang is in a monopolistic position because its closest competitors Carimin and Uzma are too small and inefficient. That is why Dayang’s share price is rising continuously and the prices of Carimin and Uzma remained depressed.