“There’s a shortage of FPSO capacity in the industry due to the lack of investment in the oil & gas (O&G) sector since 2016 and the attrition of competitors,” writes Seet, who notes that the long-term fundamentals of the O&G sector remain “sound”.
To be sure, the high sustained prices in crude oil as well as the projected increases in offshore exploration and production spending have resulted in Dyna-Mac’s orderbook of $412.3 million as at Dec 31, 2022.
“We expect demand to remain strong in the next few years and Dyna-Mac could win larger orders (of over $300 million) with potentially higher margins,” the analyst adds.
In his report dated April 17, Seet is also positive about Dyna-Mac’s new management, in particular, its CEO Lim Ah Cheng, who joined the company in March 2020.
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Under Lim’s watch, Dyna-Mac saw a turnaround in profitability, ending the FY2021 ended Dec 31, 2021, with earnings of $5.6 million. In FY2022, the company reported earnings of $13.2 million.
This was a reversal from the $24 million loss in FY2019 and the $58.4 million loss in FY2020 when the Covid-19 pandemic struck.
Seet is particularly impressed with Dyna-Mac’s improved cash position due to the restructuring of its payment terms with suppliers and customers.
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“The company now requests 30%-50% upfront payment for contracts versus only 10%-20% before commencing steel works,” he writes.
Mergers and acquisitions (M&A) are also a possibility for Dyna-Mac thanks to its strong net cash position with no debt. As at end-December 2022, Dyna-Mac reported $185.4 million in cash and cash equivalents.
“Management says it’s keen to explore inorganic growth which we suspect to be in the O&G industry with recurring revenue,” says Seet.
“As Dyna-Mac is operating at close to full capacity, we think it may acquire more land to increase it yard capacity by 30% by the end of FY2023,” he adds.
Moving forward, the analyst is expecting Dyna-Mac’s shareholders to be rewarded with “much higher” dividends. Share buy backs are also a possibility with the company.
As he sees Dyna-Mac riding on the tailwinds of the O&G sector, Seet is forecasting an earnings compound annual growth rate (CAGR) of over 30% for the next two years.
As at 10.05am, shares in Dyna-Mac are trading 1.5 cents higher or 6.25% up at 25.5 cents.
