SAC Capital’s Lim Shu Rong has called engineering services firm Dyna-Mac “a force to be reckoned with” as oil prices continue to rise and energy needs become more pressing.
Lim has initiated coverage on the company with a non-rated report on June 29.
In the report, Lim writes that the floating production storage and offloading (FPSO) market, which Dyna-Mac is in, is a huge beneficiary of this development as oil production assets are moving towards deeper water.
Dyna-Mac specialises in the fabrication of topside modules for FPSO and other offshore floating platforms. It also provides other module solutions for onshore plants in the oil & gas, pharmaceutical and petrochemical industries.
Lim notes that state-owned Brazilian oil producer Petrobras is spending US$57.3 billion ($79.44 billion) on exploration and production activities, which include the construction of 15 new FPSO units targeted to come on stream over the next five years. Of the 15 units, three remain for tender.
Oil and gas consultancy Rystad Energy expect 10 FPSO contracts to be awarded in 2022 with Brazil leading the market.
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In relation to Dyna-Mac’s customers, Dutch-based SBM sees FPSO contract awards to reach 25 by end-2023, although Lim did not say how many were awarded.
She highlights that Dyna-Mac has secured a total of $270 million of orders y-t-d, bringing its total net order book to S$641million.
“This translates to stable revenue flow and earnings into FY2024, [and] we expect robust market demand to sustain its order win momentum, she writes”
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Dyna-Mac operates in a highly competitive environment, with its competitors including state-backed Chinese shipbuilders like China Offshore Oil Engineering Co (COOEC.)
However, its competitive edges are its longstanding experience in topside module fabrication projects and its timely delivery of the modules.
Furthermore, Lim notes that recent lockdowns in China have disrupted the production schedules of Chinese shipyards, and further interruptions could see FPSO operators and owners favour non-Chinese players such as Dyna-Mac.
Dyna-Mac’s net cash balance stood at $114 million ending FY2021, of which $90.7 million are advanced receipts, providing cashflow for the order executions.
However, she also sees that material inflation raises project costs, and is a key risk to maintaining its profitability.
As of 3.58pm, shares of Dyna-Mac were trading at 22.5 cents, down 0.5 cent or 2.17% from its previous close.
