Ada Lim of OCBC Investment Research has reiterated her 'buy' call and 50.5 cents target price on Dyna-Mac Holdings.
In her Sept 22 note, Lim notes that although the topside module builder's share price has retraced from a recent peak of 44 cents on Aug 10, the share price has doubled year to date (YTD). Nonetheless, Lim sees further upside given a stronger-than-expected upcycle and potential catalysts ahead for Dyna-Mac, which is net-cash.
Last month, Dyna-Mac announced a partnership with fellow listed O&M player Kim Heng to use the latter's yard space to fulfill its growing order book.
By doing so, Dyna-Mac can take on more projects while minimising some volatility in terms of costs.
Dyna-Mac, Lim recalls, had already announced plans to secure additional space from JTC.
"We see these developments as a positive for Dyna-Mac to grow its top-line significantly in the coming years, given that the company is currently constrained by limited yard space and running at more than 100% of its capacity (as it is utilising partners’ yard space)," says Lim.
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While Dyna-Mac has chosen to stay focused on its niche of building topside modules for the rigs, the company has already taken steps to "future proof" its business too.
Specifically, the company is partnering with BW Offshore Holdings so that the two companies can leverage each other’s technical know-how and expertise to jointly pursue carbon capture and storage (CCS) projects in Australia and other markets.
"This will support Dyna-Mac’s development of its capabilities in the renewables space, positioning it to capture future demand as CCS and hydrogen-related investments become more mainstream and commercially viable," says Lim.
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Overall, she believes that given the growing demand for energy, especially in Asia, the long-term fundamentals for the offshore oil and gas (O&G) industry remain sound.
Furthermore, there's near near-term lift from catch-up spending by the industry that has held back from investing in capacity amid the previous slump in energy prices.
"Continued exploration breakthroughs in places like Namibia’s Orange Basin and the East Mediterranean are also likely to support the current upcycle," says Lim.
Dyna-Mac's recent retracement in its share price from a recent peak in early August "may present opportunities for investors to gain exposure to the stock," she reasons.
The stock is now trading at a forward PE of 15.5x, which is slightly more than one standard deviation below the five-year historical average of 23.4x – suggesting that current valuations remain undemanding, adds Lim.
Dyna-Mac closed at 37 cents on Sept 22, up 2.78%.
