Maybank Securities analyst Jarick Seet is recommending Dyna-Mac’s shareholders to “accept” Hanwha Group’s revised offer. The Korean conglomerate announced, on Oct 14, that it would raise its offer to 67 cents from 60 cents. The offer is final.
“As the offer price is higher than our target price, we think that the offer is fair and shareholders should accept the offer even though we are currently in an FPSO upcycle,” says Seet in his Oct 14 report. FPSO refers to a floating production storage and offloading vessel. Seet has a “buy” call on Dyna-Mac and an unchanged target price of 64 cents.
“We believe that this represents a fair exit price for shareholders to realise their investment and reinvest into other under-valued counters,” he adds.
In his previous report dated Sept 12, Seet recommended investors to “wait” for a revised offer considering the offer of 60 cents is “fair” but is on the lower end of the fair value range.
"Given this is not a final offer, we think it would be better for investors to wait for a revised offer that is either closer or higher than our target price of 64 cents," he said at the time.
Noting that Hanwha’s offer of 67 cents represents a 10-year high, Seet says event-driven funds as well as institutional funds are likely to realise their gains and free up liquidity since any upside to Dyna-Mac’s share price will be limited until Hanwha’s offer lapses if it doesn’t cross the 50% or 90% mark.
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On Oct 14, the estate of Dyna-Mac’s late founder, Desmond Lim Tze Jong, said it would need to divest a portion of its shares before exercising its warrants. This is to avoid triggering an obligation to make a mandatory general offer for the company.
In Seet’s view, the outlook for Dyna-Mac is still positive with the company’s order book doubling to $896 million in the past year. Furthermore, the company now has 50% more land, which means it has the capacity to execute its order book at a faster pace. Moreover, the company secured higher-than-expected margins for its new projects, Seet notes. For the 1HFY2024 ended June 30, Dyna-Mac’s gross margin surged to 27.6%, more than double the 13.5% margin reported in the 1HFY2023.
“[This] justifies our positive stance on the robust FPSO space accompanied by strong growth in revenue,” Seet writes. As at June 30, the company’s net order book stood at $681.3 million, which is “sufficient” for FY2024 and FY2025, the analyst adds.
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To this end, Seet sees that Hanwha’s main aim is not to delist the company but to have a controlling stake of over 50%.
“As a result, Dyna-Mac may remain listed as the offer is only mandatory if more than 90% of the share float is acquired,” he says. “The offer is also conditional on Hanwha acquiring more than 50% of the share float. Warrants must also be converted as there is no offer for the warrants.”
The team at OCBC Investment Research say they believe in Dyna-Mac's "great potential" to grow organically in a way that will be "accretive" to the company's earnings in the near future.
The team has kept its "hold" call and fair value estimate of 66.5 cents, adding that Hanwha's new offer price has exceeded its fair value estimate.
Before Hanwha's final offer, The Edge Singapore's analyst, Thiveyen Kathirrasan, noted that Hanwha's offer of 60 cents was "fair". In his view, the company has an intrinsic value of 61 cents which is based on the FPSO industry, carbons capture and storage industry and hydrogen industry that may affect the outlook of the business. To Kathirrasan, any offer between 55 cents to 66 cents is a fair offer. Including the environmental, social and governance (ESG) discount, an offer closer to 55 cents would also be fair, he adds.
As at 12.21pm, shares in Dyna-Mac are trading flat at 65 cents.
See also:
- Hanwha Group makes tender offer of 60 cents per share for Dyna-Mac (update)
- ZICO Capital appointed as IFA for Dyna-Mac's offer
- Estate of Dyna-Mac’s founding shareholder does not find Hanwha’s cash offer compelling
- Hanwha Group explains rationale behind Dyna-Mac’s offer price
- Standoff as Hanwha keeps 60 cents offer price for Dyna-Mac in offer document
- Estate of Dyna-Mac’s founding shareholder issues follow-up statement after offer document
- Hanwha Group announces ‘final offer’ of 67 cents for Dyna-Mac (update)
