Dyna-Mac Holdings

OCBC on 6 Jul 2012

We met up with the management of Dyna-Mac Holdings Ltd (DMH) yesterday for an update on its proposed acquisition of Paliy Marine Fabricator (Guangzhou) Ltd (PMF). On 29 Jun 2012, the group announced that it intends to purchase a 70% stake in PMF, from its controlling shareholder – Paliy Marine Engineering Pte Ltd – for S$3.8m. PMF operates a 100,000sqm fabrication yard in Guangzhou and has been engaged in the fabrication of structural blocks for semi-submersibles for the past three years. Assuming full utilization and productivity level similar to its yards in Singapore, we believe this acquisition could potentially increase DMH’s maximum output by 70%. We updated our model and now projects a 20-40% increase in FY12-13F EPS. This, in turn, raises our fair value estimate to S$0.45. Upgrade to BUY.

Acquisition of Paliy Marine Fabricator
We met up with the management of Dyna-Mac Holdings Ltd (DMH) yesterday for an update on its proposed acquisition of Paliy Marine Fabricator (Guangzhou) Ltd (PMF). On 29 Jun 2012, the group announced that it intends to purchase a 70% stake in PMF, from its controlling shareholder – Paliy Marine Engineering Pte Ltd – for S$3.8m. PMF operates a 100,000sqm fabrication yard in Guangzhou and has been engaged in the fabrication of structural blocks for semi-submersibles for the past three years. Assuming full utilization and productivity level similar to its yards in Singapore, we believe this acquisition could potentially increase DMH’s maximum output by 70%.

Ramping up its overseas operations
We expect DMH to ramp up operations at its new yard progressively over the next 12 months. The group is already restructuring the PMF’s management team (although most of the existing workforce will be retained). Capital expenditure for upgrading of yard facilities should be modest (est. S$1m). Looking ahead, DMH is confident of getting sufficient new orders to fill the newly acquired yard, by leveraging on its good track record and close working relationships with its global clients.

Expanding the other businesses
Besides its traditional FPSO topside module business, DMH now takes on other jobs such as turrets and land-based modules. Over time, this should help DMH diversify its product offerings and lower its risk profile.

Upgrade to BUY
We updated our model to incorporate this latest development. We are now projecting a gradual increase in utilization at the Guangzhou yard over the next 12 months. This increases our FY12-13F EPS by 20-40%, which in turn raises our fair value estimate to S$0.45. Upgrade to BUY.