Broker’s take: Lim & Tan initiates Dyna-Mac with ‘buy’, S$0.45 target price

LIM & Tan Securities initiated coverage on offshore oil and gas contractor Dyna-Mac with a “buy” call and target price of S$0.45 on Monday (Mar 18). 

The initiation came as the brokerage expects the company to register top-line growth amid the industry’s “super cycle”, said analyst Nicholas Yon.

“We expect further contract wins, margin expansion, and increased revenues and profitability for Dyna-Mac in FY2024 and FY2025 as it continues to ride the oil and gas industry upcycle.”  

In Yon’s view, Dyna-Mac is likely to benefit from the floating production storage and offloading (FPSO) vessels industry’s increasing charter rates and heightened capital expenditure amid the present supply glut. 

He added that the company actively secured contracts from prominent FPSO market players in 2023 and 2024, highlighting strong demand for Dyna-Mac’s topside module fabrication. This is likely to persist given increased expenditure in the oil and gas sector. 

With oil and gas capital expenditure expected to grow, Dyna-Mac is primed to capitalise on this, said Yon. 

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He noted that Dyna-Mac’s recent acquisition of more land to expand its operational facilities makes it likely for the company to win even more contracts. 

“We believe that Dyna-Mac is anticipating further order book wins, prompting their rapid expansion of yard space to accommodate forthcoming orders. This bodes well for shareholders.” 

Overall, Yon posits that the potential oil and gas industry upcycle, coupled with Dyna-Mac’s expansion, provides clear visibility of revenues and earnings into FY2025. 

Yon anticipates a dividend payout of S$0.94 in FY2024, translating to a dividend yield of 2.6 per cent. The analyst pointed out that there is potential for higher dividends with its forecast dividend yield increasing from 2.6 per cent in FY2024 to 3.4 per cent in FY2025. 

“Despite the necessity of capital expenditure for its yard expansion endeavours, we remain confident in the sustainability of dividends, underpinned by Dyna-Mac’s resilient balance sheet and the ongoing advancements within the oil and gas sector.” 

Yon viewed Dyna-Mac’s valuations as “undemanding” given its strong net cash position. The stock currently trades at a 10.3 times price-to-earnings (PE) ratio based on the brokerage’s FY2024 estimates, a discount compared to its peers who are trading at a 19.5 times PE ratio. 

The analyst noted that the current trading price offers an “irresistible” investment opportunity for investors seeking a strong oil and gas proxy to ride the market upcycle. 

He said that while Dyna-Mac was considered asset light with a “high” 5.3 times price-to-book ratio, the company’s strong return on equity of 41 per cent made up for it. 

Shares of Dyna-Mac : NO4 0% were trading up S$0.01 or 2.8 per cent at S$0.365 as at 3.30 pm on Tuesday.