Maintain BUY with an unchanged TP of SGD0.40
We hosted Dyna-Mac at our Invest ASEAN 2023 conference last week. Management is focusing on its yard expansion plan and remains confident of leasing land near its current facilities by the end of 2023, potentially expanding capacity by 30-40% as it is currently close to full utilisation. It is also exploring M&A opportunities and hopes to acquire similar industry businesses with recurring revenues. We remain confident of Dyna-Mac’s outlook and maintain BUY. Its valuation at 20.2x FY23E P/E is undemanding vs 28.6x for global peers.
Stronger quarters ahead
1Q is usually the weakest quarter for Dyna-Mac as holidays like the Chinese New Year disrupt operations. We expect better quarters ahead for DynaMac and remain confident in management’s execution ability. Gross margin has also risen to 13.3% in 1Q23 from 8.5% in 1Q22 and we expect margins to continue to rise due to better utilisation as well as improved pricing of contracts. With utilisation now above 90%, we believe it’s a good signal to its potential upcoming financial performance.
Target to expand capacity by 30-40%
Management is looking to expand yard capacity, which corresponds with the robust FPSO demand in the medium term. We expect management to secure a lease and expand yard capacity by 30-40% by the end of 2023, which would allow revenue to grow by 30-40% from FY24E onwards.
Looking to add recurring revenues
As Dyna-Mac’s earnings are now almost entirely based on its order book, management is keen to diversify into more recurring revenue streams in similar industry segments and is exploring M&A opportunities on this front. We believe this direction will be positive for shareholders as it will add
more certainty to earnings and cashflows, especially during downturns. We also maintain a bullish long-term outlook for Dyna-Mac as we believe it’s one of the key beneficiaries of this multi-year 2022-2026 upcycle.