Daya Materials Bhd - more contracts and record profits

With an existing orderbook of RM1.5bil, there are possibilities for more contracts and record profits.

It won two major charter contracts from Norway. The earnings from these contracts are set to be realized in 2014.

In the 2000s, Daya has been more focused on the downstream oil and gas (O&G) segment. It chugged along, growing organically until 2013, when it entered the offshore construction segment.

It formed Daya Offshore Construction Bhd (DOC) in September 2012. The arrival of vessels Siem Daya 1 and Siem Daya 2 proved to be Daya’s inflection point.

On Aug 16 2013, Daya clinched a seven year charter contract from Technip for the provision of a subsea construction vessel. This project will run for 100 to 175 days per annum commencing in 2014 with an estimated value of RM250mil to RM440mil.

On Sept 3 2013, Daya won again with Technip, when it secured another three-year contract for a period of 100 to 175 days with an estimated value of RM100mil to RM176mil.

Contributions from the North Sea are set to climb starting from the first quarter of 2014, as contributions from Siem Daya 1 and Siem Daya 2 kick in. Daya’s revenue could further increase should Reach Energy Bhd, in which Daya has made an investment as an initial investor, acquire O&G assets overseas.

Reach Energy is set to become Malaysia’s fourth special purpose acquisition company once it gains the approval for a listing from the Securities Commission.

Daya Materials - 1st Malaysian companies secure O&G contracts in Norwegian market

It could become one of the first Malaysian companies to secure long term upstream O&G contracts in the Norwegian market.

Sources say it is close to securing both short term and long term contracts in the North Sea for its chartered vessel Siem Daya1 ensuring that the subsea service vessel is deployed for jobs immediately upon its delivery in Sept 2013.

Meanwhile the group is in negotiations to acquire a major stake in a similar vessel in Norway, which could be completed as early as Dec 2013, along with service contracts in the North Sea. It plans to name the second vessel SD2.

It is negotiating several contracts with oil majors and global offshore contractor for both the short term and long term deployment of SD1 in the North Sea. If successful, it will be the first Malaysian company to bag a long term contract in the Norwegian market.

Daya has the option to acquire SD1 from its owner Siem Offshore Inc.

It is also in negotiations to buy a number of these vessels. The value of each vessel will be in excess of US$100 million. It plans to deply these vessels not only Malaysia bit also worldwide.

The securing of contracts for SD1 and potentially SD2 by end of 2013 will mark the group’s most significant foray into the upstream business to date (Aug 2013) and will be a catalyst for a re rating.

It is estimated a 7% boost to Daya Matetails’ FY2013 earnings if a contract can be secured soon.

 Acquiring a vessel however will be a breakaway from Daya Materials’ traditionally asset light model. Currently (Aug 2013), the group only has a gearing of 0.1 times and with the amount of steady cash that its other businesses generate, the group could even be in a net cash position by end 2014 – if it does not make any acquisitions. It is worth noting that Daya Materials does not need to acquire an entire vessel but split the ownership with the shipbuilder.

Each of these vessels cost in excess of US$100 million. Assuming Daya buys half the ownership of a vessel and funds it with 70% borrowings and 30% of its own money, it will only need to fork out upwards of rm50 million from its coffers.

A private placement is its last choice when it comes to raising funds. The directors collectively control the majority of the group and the last thing it wants is to be diluted at this stage.

It will likely pursue a convertible bond issue of about rm50 million to rm70 million to finance acquisitions.

In the downstream sector, Daya Materials has a fleet of 25 cranes ranging from 25 tones to 400 tones as well as almost a dozen auxiliary trucks and forklifts. Its downstream chemicals business includes supplying virtually all the odorant for liquid petroleum gas in Malaysia.

The group is also tapping the upstream business with a small stake in Reach Energy Bhd, a SPAC that will venture into brownfield projects.