We expect Dyna-Mac Holdings to be a key beneficiary of recent FPSO order wins by its key customers such as Bumi Armada Berhad and BW Offshore. Dyna-Mac stands a strong chance to secure contracts for the engineering, procurement and construction (EPC) work of the topside modules, in our view. Although crude oil prices have dipped recently, we remain positive on the long-term outlook on the oil and gas sector. SBM Offshore, currently the largest FPSO player globally, estimates that there would be 12 and 13 FPSO awards in 2014 and 2015, respectively. As Dyna-Mac’s share price has appreciated 14.5% since we last reiterated our ‘Buy’ rating on 18 Aug 2014, we believe potential total returns are now limited at 6.9%. Hence, we downgrade Dyna-Mac to HOLD on valuation grounds, with an unchanged fair value estimate of S$0.445. Notwithstanding our downgrade, we believe Dyna-Mac’s share price will continue to be supported by its healthy FY14F dividend yield of 4.6%.
Likely beneficiary of key customers’ recent order wins
Bumi Armada Berhad, one of Dyna-Mac Holdings’ key customers, recently announced the signing of the Angola Block 15/06 FPSO project worth ~MYR9.6b from Eni Angola S.p.A., and the receipt of a Letter of Intent together with its JV partner for the Madura FPSO project in Indonesia amounting to ~MYR3.76b. Given that Bumi Armada has mentioned before that its high-end modules fabrication work will be performed by Dyna-Mac, we expect future contract wins by the latter in the foreseeable future. Meanwhile, BW Offshore signed a contract in May this year with Premier Oil for a FPSO to operate on the Catcher oil field in the UK North Sea. We believe Dyna-Mac stands a good chance to secure the order for the engineering, procurement and construction (EPC) of the topside modules, as BW Offshore highlighted that the conversion and integration of the FPSO will be carried out in Singapore.
FPSO tendering activities still healthy
Crude oil prices have dipped recently due to the USD appreciating and the easing of geopolitical tensions. Nevertheless, we remain positive on the long-term outlook on the oil and gas sector, given our expectations that global oil demand will continue to grow. The current order backlog for floating production systems consists of 65 units, of which 37 are FPSOs. SBM Offshore, currently the largest FPSO player globally, estimates that there would be 12 FPSO awards in 2014 (5 handed out in 1H14), versus 10 awarded in 2013. This is projected to further increase to 13 awards in 2015.
Share price has performed well; downgrade to HOLD
Dyna-Mac’s share price has appreciated 14.5% since we last reiterated our ‘Buy’ rating on 18 Aug 2014, far surpassing the FTSE Oil and Gas Index and STI’s -0.5% and 1.0% respective movement during the same period. At its current price level, potential total returns appear limited at 6.9%, versus our unchanged fair value estimate of S$0.445 (pegged to 15x blended FY14/15F EPS). Hence, we downgrade Dyna-Mac to HOLD on valuation grounds. Notwithstanding our downgrade, we believe Dyna-Mac’s share price will continue to be supported by its healthy FY14F dividend yield of 4.6%.a
Bumi Armada Berhad, one of Dyna-Mac Holdings’ key customers, recently announced the signing of the Angola Block 15/06 FPSO project worth ~MYR9.6b from Eni Angola S.p.A., and the receipt of a Letter of Intent together with its JV partner for the Madura FPSO project in Indonesia amounting to ~MYR3.76b. Given that Bumi Armada has mentioned before that its high-end modules fabrication work will be performed by Dyna-Mac, we expect future contract wins by the latter in the foreseeable future. Meanwhile, BW Offshore signed a contract in May this year with Premier Oil for a FPSO to operate on the Catcher oil field in the UK North Sea. We believe Dyna-Mac stands a good chance to secure the order for the engineering, procurement and construction (EPC) of the topside modules, as BW Offshore highlighted that the conversion and integration of the FPSO will be carried out in Singapore.
FPSO tendering activities still healthy
Crude oil prices have dipped recently due to the USD appreciating and the easing of geopolitical tensions. Nevertheless, we remain positive on the long-term outlook on the oil and gas sector, given our expectations that global oil demand will continue to grow. The current order backlog for floating production systems consists of 65 units, of which 37 are FPSOs. SBM Offshore, currently the largest FPSO player globally, estimates that there would be 12 FPSO awards in 2014 (5 handed out in 1H14), versus 10 awarded in 2013. This is projected to further increase to 13 awards in 2015.
Share price has performed well; downgrade to HOLD
Dyna-Mac’s share price has appreciated 14.5% since we last reiterated our ‘Buy’ rating on 18 Aug 2014, far surpassing the FTSE Oil and Gas Index and STI’s -0.5% and 1.0% respective movement during the same period. At its current price level, potential total returns appear limited at 6.9%, versus our unchanged fair value estimate of S$0.445 (pegged to 15x blended FY14/15F EPS). Hence, we downgrade Dyna-Mac to HOLD on valuation grounds. Notwithstanding our downgrade, we believe Dyna-Mac’s share price will continue to be supported by its healthy FY14F dividend yield of 4.6%.a
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