Jarick Seet of Maybank Securities has maintained his "buy" call on Dyna-Mac Holdings NO4 along with a higher target price of 52 cents, from 46 cents.
In his June 19 note, Seet reasons that with the company's 50% capacity expansion, high operating leverage and doubling of its orderbook to $896 million should enable it to reap better net margins as FPSO builders and operators continue to enjoy high prices and rates.
Seet notes that the additional capacity can help Dyna-Mac both increase its revenue while eking out better margins.
Based on his own channel checks, Seet says that FPSO builders are enjoying better pricing for each FPSO new-build.
"We believe that this should flow down to players like Dyna-Mac which would grant them better margins for the new orders won.
"With better gross margins on new projects and better operating leverage with more efficient use of labour and space, we believe Dyna-mac could perform much better than we initially expected," says Seet.
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He has increased his FY2024 earnings estimate by 24.7% to $43 million and FY2025's by 26.9% to $51 million.
His new target price of 52 cents is based on 15x FY2024 earnings.
"We believe Dyna-Mac is a key beneficiary of this multi-year FPSO upcycle and it remains one of our top picks in the small and mid-cap space," says Seet.
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In another recent development, Korean conglomerate Hanwha has bought over Keppel's long-held stake in Dyna-Mac. Coupled with the shares it already owns, Hanwha is the second largest shareholder at 27.1%, not too far behind that of the Lim family, which holds 32%.
"We believe Hanwha Ocean may be on a global expansion drive, as it looks to expand its footprint in marine energy solutions and shipbuilding," says Seet, adding that the Korean company had in April launched a US$662 million bid for Australian shipbuilder Austal.
"We believe Hanwha Aerospace & Ocean should be a positive addition for Dyna-Mac," says Seet.
Dyna-Mac shares changed hands at 40 cents as at 9.22am, up 6.67%.
