Dyna-Mac investors should wait for a possible revised offer

Dyna-Mac Report

Offer Details

• Offer: Dyna-Mac received a voluntary conditional cash offer from Hanwha Ocean SG Holdings for all issued and paid-up shares at SGD 0.60 per share.
• Condition: The offer is conditional upon Hanwha Ocean SG Holdings acquiring more than 50% of the total shareholding in Dyna-Mac.
• Recommendation: The report suggests that investors should wait for a possible revised offer that could be closer to or higher than the target price of SGD 0.64, especially given the positive outlook for the company.

Company Overview

• Description: Dyna-Mac is a global provider of engineering, procurement, fabrication, and commissioning services, primarily for topside modules in the Oil & Gas (O&G) industry. The company has two fabrication yards in Singapore totaling 140,000 square meters.
• Financial Position: The company has zero debt and holds SGD 128.5 million in net cash, which can be used for growth opportunities.
• Order Book: The company’s order book doubled to SGD 896 million in 2023, and there is potential for faster execution due to a 50% expansion in land space. The net order book is SGD 681.3 million.

Financial Performance

• Gross Margin: The gross margin surged to 27.6% in 1H24 from 13.5% in 1H23.
• Revenue:
  • FY22: SGD 291 million
  • FY23: SGD 385 million (Estimated)
  • FY24: SGD 520 million (Estimated)
  • FY25: SGD 624 million (Estimated)
  • FY26: SGD 718 million (Estimated)
• EBITDA:
  • FY22: SGD 12 million
  • FY23: SGD 25 million (Estimated)
  • FY24: SGD 72 million (Estimated)
  • FY25: SGD 85 million (Estimated)
  • FY26: SGD 97 million (Estimated)
• Core Net Profit:
  • FY22: SGD 13 million
  • FY23: SGD 29 million (Estimated)
  • FY24: SGD 61 million (Estimated)
  • FY25: SGD 72 million (Estimated)
  • FY26: SGD 84 million (Estimated)
• Core EPS: The company’s core earnings per share (EPS) is expected to grow:
  • FY22: 1.3 cents
  • FY23: 2.3 cents
  • FY24: 4.9 cents
  • FY25: 5.8 cents
  • FY26: 6.8 cents
• Dividend Per Share (DPS):
  • FY22: 0.3 cents
  • FY23: 0.8 cents (Estimated)
  • FY24: 1.7 cents (Estimated)
  • FY25: 2.1 cents (Estimated)
  • FY26: 2.4 cents (Estimated)
• Valuation:
  • The company is trading at 10.1x PE for FY24 and 8.5x PE for FY25.
  • Price to Book (P/B) ratio is expected to drop from 4.8x in FY24 to 2.2x in FY26.
  • Dividend Yield: The company’s dividend yield is projected to rise from 1.5% in FY22 to 4.9% in FY26.

Growth Potential

• Industry Outlook: The company benefits from robust growth in the O&G sector, particularly the rising demand for Floating Production, Storage, and Offloading (FPSO) modules. Dyna-Mac’s capabilities position it well to secure larger contracts with higher profit margins.
• Execution Excellence: The company has outperformed expectations in the current upcycle, with strong financial performance attributed to effective management led by CEO AC Lim and his team.
• Future Contracts: Dyna-Mac is expected to win more large contracts in the coming years, further boosting revenue and profitability.

Environmental, Social, and Governance (ESG) Factors

• ESG Focus: The company has implemented various ESG initiatives, including the use of electric forklifts and compressors instead of diesel-powered machines. It also has measures in place to reduce energy consumption and waste.
• GHG Emissions: Dyna-Mac has been working on reducing its Scope 1 and 2 GHG emissions, and it plans to gather data on Scope 3 emissions in the future.
  • Scope 1 Emissions: Increased from 1,808 tCO2e in 2021 to 5,132 tCO2e in 2023.
  • Scope 2 Emissions: Increased from 2,624 tCO2e in 2021 to 4,750 tCO2e in 2023.
• Board Composition: The board consists of six directors, with 40% female representation.

Key Risks

• Downside Risks:
  • Any significant decline in oil prices may reduce investment in the O&G space, affecting Dyna-Mac’s future revenue.
  • Increased labor costs could potentially squeeze profit margins.
  • New competitors entering the market may temporarily affect Dyna-Mac’s market share.

Investment Recommendation

• The report suggests a BUY recommendation with a target price of SGD 0.64, representing a 29% upside from the current price of SGD 0.50. This recommendation is based on the company’s strong cash position, expanding order book, improving profit margins, and growth prospects in the FPSO and renewable energy sectors.

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