OCBC's Ada Lim has maintained her 'buy" call on Dyna-Mac Holdings NO4 , but with a raised fair value price of 41.5 cents, up from 37 cents.
Noting that Dyna-Mac has gained 12.9% since she started coverage on May 12, Lim says there's further upside for the company, given the stronger-than-expected upcycle and potential catalysts ahead.
The company specialises in building so-called topside modules for oil rigs, which are seeing a resurgence in demand because of higher oil prices.
With a healthy balance sheet, Lim believes the company might either expand its existing yard space, or acquire synergistic peers or competitors in a manner that will be accretive to the company’s earnings – thereby unlocking further value for shareholders.
Another catalyst might come from the company's willingness to raise its dividend payout ratio, writes Lim. "If the company is at a more ideal stage, we may possibly go up to 50%," executive chairman Lim Ah Cheng tells The Edge Singapore in an interview published on May 31.
Share buybacks are also being considered.
See also: Test debug host entity
Lim further notes that Dyna-Mac has been amongst the top institutional net buy stocks recently, which can be partly attributed to an ongoing rotation from financials counters into industrial and capital goods stocks.
"Dyna-Mac certainly stands out amongst its peers given its resilient growth profile and strong net cash position. Institutional funds tend to be stickier, which could provide some support for Dyna-Mac’s share price in the longer term," says Lim.
Lim's higher target price of 41.5 cents reflects her expectations that Dyna-Mac will secure a larger dollar value of orders ahead.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
In May alone, the company secured some $270 million in new orders, bringing its total order book to $609.1 million, to be delivered into FY2025.
Despite its recent rally, Dyna-Mac is trading at a FY2023 and FY2024 price-to-earnings (P/E) ratio of 19.4x and 15.2x, which are still around one-tenth and slightly more than half a standard deviation below its five-year historical average of 20.7x respectively.
"We think this still presents an opportunity for investors to gain exposure to the FPSO upcycle through a local small-cap proxy," says Lim.
