Jarick Seet of Maybank Securities, in his Aug 8 note, has maintained his "buy" call on Dyna-Mac Holdings, along with a raised target price of 51 cents, from 40 cents previously.
On Aug 7, the company reported a strong set of numbers for its 1HFY2023 ended June 30. Earnings increased by 218% y-o-y to $10.2 million, on the back of a 47% y-o-y increase in revenue to $182.3 million.
Riding on the resurgence of the overall oil and gas sector, the company, which is known for building topside modules for oil rigs, was able to improve its gross margins to 13.5% from 10.1%.
In a sign of how Dyna-Mac is seeing better prospects ahead, it is in the midst of securing new land from JTC so that it can expand its capacity by up to 40%.
Dyna-Mac plans to use the new space to provide additional fabrication capacity for current and future projects such as carbon capture and storage, and exotic piping for hydrogen/ammonia.
The company is also exploring M&A opportunities and hopes to acquire similar industry businesses with recurring revenues.
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"We remain confident of Dyna-Mac’s outlook," writes Seet, noting that the company has built up an order book of $542.7 million.
His new target price of 51 cents is pegged to 20x forward FY2024 earnings, which is an increase of 8% from his earlier projection.
"We expect continual gains on better utilisation as well as improved pricing of contracts. With utilisation now close to full, we believe this is a good sign for its financial performance in the second half of the current FY2023. Traditionally, the second half has also always been stronger than the first half," adds Seet.
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The analyst also notes that Dyna-Mac, holding net cash of $128.5 million, is keen to acquire new businesses so that it can lift its recurring revenue stream and not be as reliant on project-based earnings.
"We believe this direction will be positive for shareholders as it will add more certainty to earnings and cash flows, especially during downturns.
"We also maintain a bullish long-term outlook for Dyna-Mac which we believe is a key beneficiary of this multiyear upcycle seen to last from 2022 to 2026," says Seet.
Dyna-Mac closed at 41 cents on Aug 7, down 1.2% for the day, but up 115.8% year to date. – The Edge Singapore
