Maybank Securities analyst Jarick Seet is keeping his “buy” call on Dyna-Mac at a maintained target price of 38 cents.
In his Feb 5 report, the analyst notes that the company will likely end the year or FY2023 ended Dec 31, 2023, with an estimated revenue of $367 million and net profit after tax (NPAT) of $20.7 million, representing 28.4% y-o-y earnings per share (EPS) growth.
“Most importantly, we expect stronger FY2024 growth as it grew capacity by 50% to 60%. We expect cost savings from lower logistics and warehousing expenses to be enough to cover the recent acquisition, which cost US$8.25 million ($11 million),” writes the analyst.
Additionally, he expects order wins of $200 million to $400 million by 1HFY2024, which could potentially lift Dyna-Mac's as at Oct 2, 2023, orderbook of $630.7 million.
“As floating production storage and offloading (FPSO) charter rates are still rising and with FPSO orders in the pipeline, we expect Dyna-Mac to continue to benefit significantly from this trend,” adds Seet, who expects the company to secure $200 million to $400 million more orders by 1HFY2024.
Meanwhile, following the leasing of land from JTC and subsequent expansion, Dyna-Mac has signalled its intent to acquire Exterran Offshore, which comes with about 4.5 hectares of yard facilities, next to its main facility with lease until 2030.
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The acquisition will extend the company’s waterfront length by 680 metres, with a net cost of US$6.1 million, equivalent to about US$1.02 million annually.
“We understand that Dyna-Mac previously used third-party warehousing due to the lack of capacity and this incurred additional logistics costs. We expect cost savings to easily cover the US$1.02 million a year for the acquisition. It will also re-organise the layout of the entire facility, which should help lift operating efficiency,” writes Seet.
“We believe [an] increase in capacity through this acquisition signals management’s bullishness of winning new orders, which would likely lead to higher revenue and profits. Dyna-Mac remains one of our top small and mid-caps (SMID) conviction picks,” he adds.
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Seet forecasts Dyna-Mac to post a strong organic earnings growth of at least 30% compound annual growth rate (CAGR) for the next two years, riding on the boom of the oil and gas (O&G) industry, winning larger contracts and boosting its revenue and already-high order book, as well as growing inorganically through acquisitions.
Conversely, downside risks for the company include the decline in oil prices, which will reduce its investments in the O&G space. Other risks include higher labour costs which will reduce margins, and new competitors entering the industry, which could temporarily reduce Dyna-Mac’s market share.
As at 4.10 pm, shares in Dyna-Mac are trading at 0.5 cents higher or 2% up at 26 cents.
