Dyna-Mac Holdings

Kim Eng on 24 Apr 2012

Background: Dyna-Mac is a specialist provider of engineering, procurement and construction (EPC) services to the offshore oil and gas, marine construction and other industries. Its principal business is in fabrication and assembly of topside modules for FPSOs and FSOs in Singapore. Other businesses include ad hoc general engineering and fabrication projects for specialised structures for semi-submersibles and subsea products.

Recent developments: Dyna-Mac recently announced contract wins worth about USD31.6m from SBM Offshore and Bumi Armada. This came after Keppel Corp’s contract win to refurbish and upgrade an FPSO for the same two customers. However, Dyna-Mac’s 1Q12 results were disappointing with net profit registering a 51% YoY fall. Note that its fiscal year-end has been changed from May to December.

Slow recognition of contracts in early stages. Dyna-Mac’s 1Q12 results again fell below consensus  expectations. The weak performance was due to slower revenue recognition as most contracts are in the early stages. This was the second quarterly results that disappointed. In the previous quarter, after the release of the results, share price tumbled from SGD0.55 to the current level over two days.

Signs of better performance ahead. However, we see several positive signs ahead. Dyna-Mac’s orderbook stood at a record SGD201m as at 1Q12, with the bulk expected to be recognised in FY12. The company has also rented additional yard space of 100,000 sq ft to cope with its orderbook.

Optimistic macro outlook. On the macro front, there are reasons to be optimistic given the positive outlook for deepwater oil exploration and production, which would increase the demand for FPSOs and FSOs. This trend could be confirmed by more FPSO and FSO orders for Keppel and Sembcorp Marine in the months ahead.

Sustained rich valuation. Compared to Technics Oil & Gas and Hiap Seng, Dyna-Mac’s valuation looks rich but it has been able to command a premium over these peers. Perhaps its association with Keppel helps or could there be some corporate actions of which we are unaware?