Maybank Research analyst Jarick Seet has maintained his “buy” call on Dyna-Mac with an unchanged target price of 40 cents as the engineering company focuses on its yard expansion plan.
According to Seet, Dyna-Mac — which is currently operating close to full utilisation — is confident of leasing additional land near its current facilities by the end of 2023, which could potentially see its capacity expand by 30% to 40%.
The analyst says that this expansion would correspond with robust floating production storage and offloading (FPSO) demand in the medium term and expects revenue to increase at the same rate as its expanded capacity, by some 30% to 40% from FY2024 ending December 2024 onwards.
Seet notes that Dyna-Mac is also exploring merger and acquisition (M&A) opportunities and hopes to acquire similar businesses in the industry with recurring revenues. “As Dyna-Mac’s earnings are now almost entirely based on its order book, management is keen to diversify into more recurring revenue streams in similar industry segments and is exploring M&A opportunities on this front,” he explains.
“We believe this direction will be positive for shareholders as it will add more certainty to earnings and cash flows, especially during downturns,” adds Seet.
The analyst maintains a bullish long-term outlook for Dyna-Mac, as he believes the company will be one of the key beneficiaries of the 2022 to 2026 multi-year upcycle the oil and gas industry is experiencing.
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Seet adds that Dyna-Mac’s valuation at a 20.2x FY2023 price-to-earnings ratio (P/E) is undemanding compared to the 28.6x for global peers.
Catalysts for the company on the upside will arrive from the boom in the oil and gas sector; larger contract wins, which would boost its revenue and order book; and inorganic growth through acquisitions due to its net cash balance sheet. Additionally, Seet forecasts strong organic earnings growth of at least 30% compound annual growth rate (CAGR) for the next two years.
On the downside, a decline in oil prices would reduce investments in the oil and gas space, while higher labour costs would reduce Dyna-Mac’s margins. New competitors entering the industry could also temporarily reduce its market share, says Seet.
As at 12.07am, shares in Dyna-Mac were trading flat at 37.5 cents.
