Jarick Seet of Maybank Securities has maintained his "buy" call on Dyna-Mac Holdings and raised his target price from 38 cents to 42 cents, betting that the company will continue to ride on the current multi-year industry upcycle.
"We believe an increase in capacity, larger orders with better margins will likely lead to higher revenue and profits. Dyna-Mac remains one of our top small and mid-cap conviction picks," writes Seet in his Feb 21 note.
On Feb 20, the company reported FY2023 earnings of $28.69 million, up 114% y-o-y - a good 39% above Seet's projection of $20.7 million, which is attributed to a rise in project volumes and improved productivity, tighter cost control and lucrative margins for new orders won.
This year Seet expects the company to incur capex of between $15 and $25 million to reconfigure its layout with additional space from a new lease and recent acquisition of a neighbour.
With the bigger space, Seet expects the company to gun for larger contracts.
With excess capacity, Seet believes the company will undertake more work internally instead of outsourcing and thereby lift overall margins.
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Seet believes that the pipeline of new FPSOs remains strong, as indicated by how charter rates for these rigs are still increasing because of the lack of supply now.
He expects Dyna-Mac to secure another $300-400 million of orders by end of the current 1HFY2024 and another $200-300 million by end of the current year.
The company's current order book stands at $438.2 million, most of which will be recognised this year.
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Seet has raised his patmi forecasts for the current FY2024 by 31% and for the coming FY2025 by 34%.
His revised target price of 42 cents is pegged to 15x FY2024 earnings, reduced from an earlier multiple of 16.5x, to take into account dilution of the share base from a recent warrant issue.
Similarly, Ada Lim of OCBC Investment Research raised her fair value for the company from 36 cents to 42 cents, to reflect "further upside potential" amid a "stronger-than-expected" upcycle. "The best is yet to be," states Lim in her Feb 23 report.
"Management remains optimistic of buoyant demand going forward," says Lim, referring to robust demand for rigs by an industry with "overwhelmingly" positive sentiment this year.
"Brazil could potentially be a bright spot, with government and industry officials expecting the continued ramp up of oil production and development of offshore fields this year," she adds.
Even as it aims to win contracts building topside modules for the rigs, Dyna-Mac continues to diversify its product offerings, such as exotic piping, blue hydrogen plants, and pharmaceutical plants in a broader bid to to future-proof its business.
"Finally, management continues to keep an eye out for strategic merger and acquisition (M&A) opportunities, even as it practices prudent capital management to maintain a strong balance sheet," says Lim.
Dyna-Mac shares closed at 31 cents on Feb 23 at 27 cents, up 3.39%.
