Dyna-Mac draws attention

In this issue:

• Korea’s Hanwha Corporation makes bid for Singapore offshore services provider
• 99 Speed Mart makes a good first impression

Greetings dear reader,

Hanwha Aerospace and Hanwha Ocean, two Korea-listed companies that are part of the Hanwha chaebol, have made an offer for Singapore-listed Dyna-Mac Holdings.

At S$0.60 per share in cash, the offer values Dyna-Mac at S$669.2 million (excluding outstanding warrants). The offer price is 21.2 per cent above Dyna-Mac’s last traded price before the Hanwha offer announcement on the night of Sep 11. It is also 50 per cent above the counter’s volume-weighted average price for the 12 months prior.

The morning after the offer announcement, however, Dyna-Mac shares opened at S$0.62. They rose as high as S$0.635, before settling to end the day at S$0.62. The stock closed Friday (Sep 13) at S$0.63.

What’s driving the optimism? Are there wider implications for the Singapore market? More on that below, as well as a successful Malaysian IPO.

What’s happening?

Dyna-Mac provides engineering, procurement and construction services to the energy sector. Its customers include not only oil and gas (O&G) players but also names in the renewable energy space.

As recently as 2019, Dyna-Mac had been a loss-making company reeling from the loss of its founder (who had passed away) and an underutilisation of its shipyard.

The company booked a net loss of S$23.8 million for FY2019, reversing from a net profit of S$1.5 million the year prior, as full-year revenue retreated 15.2 per cent to S$97.8 million.

The new chief executive, Lim Ah Cheng, has managed to turn things around, though. Revenue has risen for five consecutive quarters, and operating profit for four. Its stock, meanwhile, has been gaining ground since mid-2022.

Lim told my colleague Benjamin Cher last year that he hopes for future revenue contributions to be evenly split between its traditional O&G business and new ventures such as green energy.

This bright future has OCBC Investment Research analyst Ada Lim recommending that investors not accept the offer from Hanwha.

“Dyna-Mac has expanded its yard capacity significantly in 2023, which will be a positive for top-line growth. We think there remains great potential for the company to grow inorganically in a manner that is accretive to earnings in the near future, backed by its healthy net cash position,” Ada Lim wrote in a report dated Sep 12.

She has a fair value estimate of S$0.665 for the stock, and thus believes Hanwha’s offer undervalues Dyna-Mac.

In any case, Hanwha made it clear that it isn’t aiming to privatise Dyna-Mac. The conglomerate sees potential synergies from acquiring the engineering company, and the offer is on condition of Hanwha acquiring control of over 50 per cent of Dyna-Mac. Before the offer was made, the Korean giant was in control of 25.4 per cent of the company.

“We note that Hanwha has been on a global expansion drive, having acquired Philly Shipyard, a leading American shipbuilder, for US$100 million, and launched a failed bid for Australian shipbuilder Austal for A$1 billion,” Ada Lim added.

Maybank Research, meanwhile, noted that Hanwha might still revise its offer. It has a target of S$0.64 for Dyna-Mac, and recommends investors wait for a better offer.

“Our view is that the offer may be slightly on the lower end but it’s considered a fair offer,” the research house said. “We think there is also a good chance that Hanwha may raise the offer to cross 50 per cent and have a controlling stake.”

Why it matters

The Singapore market has been on a winning streak, attracting institutional inflow after a dry spell. Over the nine trading sessions to Sep 11, stocks booked S$763 million of net institutional inflow – reversing over 50 per cent of the net outflow for the year up to Aug 29.

One interpretation of this movement is that animal spirits are reviving as the US Federal Reserve prepares to cut interest rates. A lowering of interest rates typically stimulates risk-taking activity, because investors can no longer get a comfortable return out of low-risk bonds.

Sectors drawing the most money in Singapore, however, have been financial services, telecoms and real estate investment trusts (Reits) – all relative safe havens.

Such inflows could continue for a while as investment dollars move out of fixed income and seek higher but still-safe yields among bank stocks, telcos and distribution-paying Reits.

Will there also be money for the undervalued but slightly riskier plays like Dyna-Mac – of which there are plenty in the Singapore market?

Lower interest rates do encourage companies to seek out merger and acquisition opportunities, so it’s possible that there will be more deals to come.

The big number: 14%

That is how much shares of Malaysian minimart operator 99 Speed Mart Retail Holdings rose in their market debut last Monday (Sep 9). The counter closed at S$1.88 on Friday, 13.9 per cent over its IPO price.

As my colleague Tan Ai Leng reported, this was the 34th IPO on Bursa Malaysia this year. The exchange has a target of hosting 42 listings for this year.

Malaysia is now South-east Asia’s most active IPO market. In the first half, 21 companies were listed on the bourse, raising US$459 million.

Thailand was second with US$427 million; Indonesia, US$248 million; the Philippines, US$194 million; Vietnam, US$37 million; and Singapore with US$20 million.

I covered the listing of 99 Speed Mart in this newsletter last month, noting that the offering is supported by some strong expansion opportunities.

Indeed, analysts have recognised this. Bloomberg data shows three “buy” calls for the stock and one “outperform”. The average target price is RM2.12.

The high spirits in Malaysia appear to have persuaded Singapore-listed Grand Venture Technology, a semiconductor test equipment manufacturer, to consider a secondary listing there.

As Bloomberg reported, the IPO would “extend a reversal in a trend of Malaysia-based companies seeking listings in Singapore, which is viewed as more of a financial hub with access to global investors”.

Another Singapore-listed semiconductor company, UMS Holdings, has also said it is interested in a Malaysia listing.

5 big reads

• Investment longevity: the secret behind Warren Buffett’s success OVER 98 per cent of his net worth was accumulated after the age of 65, when most people are contemplating retirement. The primary reason for his success is investment longevity, achieved by never interrupting the compounding of returns of his investment portfolio.
• Reflecting the true cost of deliveries is good for investors INVESTORS will be better appraised of what they have bought into and will be clearer on the value proposition of the platforms.
• It’s time to overhaul the Singapore stock market FOR a disclosure-based model to work, stakeholders must be equipped with the power to hold the company and its directors accountable. Changes to the law to facilitate self-help action by minorities are needed.
• CICT’s big acquisition, fundraising exercise are signs of what’s to come as Fed finally cuts rates INVESTORS looking to ride the coming rate cuts with Reits should be prepared to be tapped for funds from time to time.
• GIC, Hillhouse in talks to invest in Midea’s Hong Kong IPO: sources SINGAPORE investor Temasek is also among the company’s potential stockholders, as it holds discussions to buy shares.