Company Highlights:

Dyna-Mac Holdings (SGX: DMHL.SI), a Singapore-based leading fabricator of offshore topside modules, has recently captured significant attention following Hanwha Aerospace and Hanwha Ocean’s tender offer of SGD 0.60 per share, representing a 21.2% premium over the last closing price. Despite the attractive offer, analysts believe Dyna-Mac’s true value remains higher, providing an interesting investment opportunity.

Investment Recommendation:

Buy – Dyna-Mac remains an attractive investment opportunity. Despite the tender offer, we recommend investors hold off on accepting the SGD 0.60 per share offer and consider the company’s long-term growth potential.

Investment Thesis:

Dyna-Mac’s focus on building offshore topside modules and its commitment to quality and reliable delivery position it well within the surging market for floating production storage and offloading (FPSO) vessels. The company’s ongoing yard capacity expansion, healthy net cash position of SGD 307.7 million, and a growing order book support its future earnings growth. As the FPSO market continues to rise due to increasing global energy demand, Dyna-Mac is strategically poised to capitalize on this momentum.

While Hanwha’s bid seeks to take control of Dyna-Mac, it is important to note that the offer does not fully reflect the company’s potential. With steady contract wins and expanding productivity, Dyna-Mac is positioned for continued margin expansion and inorganic growth opportunities that could substantially enhance its earnings profile.

Detailed Company Analysis:

Dyna-Mac Holdings:

• Financial Results: Dyna-Mac has posted robust financials, with revenue growth from SGD 182.3 million in 1H23 to SGD 259.7 million in 1H24, a 42.5% increase. Gross profit surged by an impressive 191.3%, reflecting improvements in efficiency and cost controls.
• Stock Impact: With strong financial performance, Dyna-Mac’s stock has appreciated significantly, and its future remains bright amid the FPSO upcycle.
• Earnings Revisions/Risks: There is potential for further earnings upgrades, but risks include a slowdown in new order wins due to macroeconomic uncertainties or cost overruns on existing projects.
• Valuation: The current offer price of SGD 0.60 per share is below Dyna-Mac’s fair value estimate of SGD 0.665. The offer also represents a discount to its highest share price YTD of SGD 0.615, making it less attractive.
• Share Price Catalysts: Key drivers include additional high-margin contract wins, successful strategic partnerships, and potential acquisitions.

Financial Targets:

• Target Price: SGD 0.665
• Stop-Loss Price: Not specified.

Recommendation Date:
12 September 2024

Broker Information:
This report is issued by OCBC Investment Research.