Dyna-Mac Holdings

OCBC on 12 Sept 2012

Dyna-Mac Holdings’ (DMH) share price has jumped by about 29% since we upgraded our call to BUY (“Upgrade to BUY”, 6/7/2012), outperforming STI’s flattish performance over the same period. Looking ahead, we believe there is further upside as the group is well-positioned to benefit from possible new order wins. Recent orders for floating production systems are emerging at near record pace and the current backlog globally was at a peak of 67 units as of Apr 2012. To meet the growing demands, DMH recently acquired a 70% stake in a fabrication yard in Guangzhou, and rented another yard in Johor. In view of the improving outlook, we raised our fair value estimate to S$0.62 (previously S$0.52). Maintain BUY.

Up 29% our last upgrade
Dyna-Mac Holdings’ (DMH) share price has jumped by about 29% since we upgraded our call to BUY (“Upgrade to BUY”, 6/7/2012), outperforming STI’s flattish performance over the same period. Note that we first initiated coverage in DMH with a ‘HOLD’ rating on 25/6/2012. Looking ahead, we believe there is further upside as the group is well-positioned to benefit from possible new order wins.

FPSO market heating up
According to International Maritime Associates (IMA), the fundamentals driving the floating production systems are robust and recent orders have been emerging at near record pace. Current order backlog for Floating Production Systems was at a peak of 67 units as of Apr 2012, up by 11 units since Nov 2011. Of the 67 units, 45 are for FPSO vessels (17 new and 28 conversions). In terms of fabrication facilities, Asia remains the dominant location, accounting for almost half the facilities active in the sector. As DMH is one of the leading players for FPSO topside fabrication in Asia, we believe it should be able to capture its fair share of new orders.

Increasing yard capacity
To meet the growing demand for new FPSO topside orders, DMH recently acquired a 70% stake in fabrication yard in Guangzhou, China and rented another yard in Johor, Malaysia. The new yards should increase its maximum production capacity by at least 80%. In terms of manpower, the group intends to train up its workers as it ramps up its production progressively over the near- to medium- term horizon.

Maintain BUY; FV raised to S$0.62
In view of the improving outlook, we raised our valuation peg to 12x (previously 10x) and fair value estimate to S$0.62 (previously S$0.52). Maintain BUY.