Dyna-Mac Holdings

OCBC on 17 Aug 2012

Dyna-Mac Holdings Ltd (Dyna-Mac)’s 2Q12 results improved significantly with a 145.7% QoQ jump in revenue to S$57.8m and a 82.6% QoQ increase in net profit to S$6.1m. Management explained that the improvement was mainly due to faster revenue recognition as its projects proceeded into the middle stages. The group has an order-book of S$203m and expects most of it to be recognized by year-end. We updated our model for the 2Q12 results and as we roll forward our projections to FY13F, our fair value estimate increases to S$0.52 (previously S$0.45). Maintain BUY.

Improved performance in 2Q12
Dyna-Mac Holdings Ltd (Dyna-Mac)’s 2Q12 results improved significantly with a 145.7% QoQ jump in revenue to S$57.8m and a 82.6% QoQ increase in net profit to S$6.1m. Management explained that the improvement was mainly due to faster revenue recognition as its projects proceeded into the middle stages. Gross margin was down to 22.5%, from 28.8% in the previous quarter, but we are not overly concerned because margins fluctuate quarter to quarter depending on yard utilization and the settlement of claims on variation orders.

Ramping up production
The group has an order-book of S$203m as of 14-Aug-12 and expects most of it to be recognized by year-end. It is already operating at full capacity in its Singapore yards and is starting production in its recently acquired China yard, DMP Marine Fabricator (DMF). DMF has an annual capacity of 10,000 tons and will contribute to 2H12F performance. However, as it needs to train its workers, we project a gradual increase in production over the coming 12 months. Besides DMF, Dyna-Mac disclosed that it has signed a 6-year tenancy agreement for a Johor yard. The Johor yard is currently undergoing some upgrading works and will begin production in 2013 with an initial output of 10,000 tons.

Bidding for more projects
The management remains optimistic about the outlook for production systems. The level of enquires that it received is healthy and it is currently bidding for a number of new jobs. We updated our model for the 2Q12 results and as we roll forward our projections to FY13F, our fair value estimate increases to S$0.52 (previously S$0.45). Maintain BUY.