Lim Ah Cheng joined Dyna-Mac Holdings NO4 in March 2020 just when the pandemic started, dealing another heavy blow to the offshore and marine industry that was already struggling amid the downturn.
“The yard was shut, there were no workers, oil prices were down drastically, and some of our projects were even making losses then. We didn’t have enough work at the time as well,” recalls Lim, the company’s executive chairman and CEO, in an interview with The Edge Singapore.
However, with oil prices rising in the wake of the Ukraine war, demand for Dyna-Mac’s products and services is recovering strongly. On May 11, the company, which is known for building so-called topside modules for oil rigs, announced new orders worth $270 million, bringing its order book to $608.1 million.
Dyna-Mac has also turned profitable. From $58.4 million in the red in FY2020 ended December 2020, it reported earnings of $5.6 million in FY2021 and $13.4 million in FY2022. In 1QFY2023, the company reported earnings of $3.87 million, up from $1.86 million in 1QFY2022. Indeed, the company’s progress has made investors sit up and take notice. Year to date, Dyna-Mac’s shares have gained 60.5% to close at 30 cents on May 30.
Steadying the company
Lim is relieved that things have gone according to plans after he took over from company founder Desmond Lim who died in October 2019. As Lim described to The Edge Singapore in his previous interview back in June 2022, his first order task was to stabilise the company, sustain the necessary level of capex and maintain sound relationships with existing partners and customers. “I’ve not changed my plan since [we last spoke]; I’ve kept to the same plan, we’re still going ahead,” says Lim. “It’s [being fulfilled] in parts one, two and three.”
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Lim is also quick to share the credit with his colleagues, preferring to use “we” and not “I”. “When we joined this company, we joined it intending to grow the company. It has a business that we believe in. We worked very hard and most of the work was done by this group and the people sweating outside,” says Lim, referring to his senior management team who also sat in during the interview. The team includes Ang Ting Yang, who is the vice-president of corporate development; Jerald Lee, vice-president of finance; and Elaine Tan, assistant manager of business development.
With the company on firmer footing, Dyna-Mac is eyeing new growth outside Singapore, especially in China or the Middle East. “But we’re also very mindful of what could be the potential dangers of going overseas. [After all], what we’re doing is still project work and that is lumpy income,” he adds. Another key plan to maintain steady growth involves generating a bigger proportion of recurring income.
Meanwhile, the company is sticking to what it does best — being a specialised fabricator of floating production storage and offloading (FPSO) modules for the renewed demand from oil majors stepping up drilling and exploration activities.
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In his May 10 report, Maybank Securities analyst Jarick Seet, noting that Dyna-Mac has a net cash position of about $122.3 million, expects the company to make acquisitions. While Lim confirms this is so, he adds that he has to be “very careful” with making these deals. “Many analysts have asked me why we are keeping all this cash within the company. This is for two reasons. We have seen many ups and downs when I first took over [and we realised that] we need a buffer for rainy days because times can be tough. Second, we are saving it for the right opportunities,” he adds.
Moreover, Lim stresses that M&As aren’t just one-sided affairs. “The other party must also be willing. We are a company that believes in integration and we’d like the other party to have a pretty similar culture to ours as well,” he says.
Ang adds that while the company is keen to grow but it has to be done in a “conservative manner”. The target company has to be in a business that Dyna-Mac is familiar with and one that the management team can manage comfortably.
Maintaining its niche
While many offshore and marine players have made proclamations about how they are pivoting to work related to renewable energy. Dyna-Mac isn’t looking to join this trend anytime soon and would rather play to its strengths. “We’re staying in our niche, which is in oil and gas,” declares Lim.
Nonetheless, Dyna-Mac is doing its part to help reduce carbon footprints. For instance, Dyna-Mac can build equipment used in carbon capture and storage (CCS) systems, which can reduce carbon emissions.
While Lim expects CCS to be a possible big growth area, he does not see this happening just yet, as many countries have yet to impose heavy carbon taxes. Therefore, there’s demand for a handful of such modules but not enough to make a meaningful difference. “But I believe the day will come. And we must be prepared,” he explains.
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Lim says there is another potentially interesting niche for the company, which is building what the industry calls “exotic piping” used in fuel-carrying systems.
Hydrogen and ammonia are touted as two greener alternative fuels. However, they corrode inferior piping material over time. As such, pipes used will require tougher specifications. Still, there is still little demand for that at present. Again, the company wants to get ready nonetheless, by upgrading its own pipe fabrication facilities. “The more difficult the job is, all the better for Dyna-Mac,” he says.
Dividends and buybacks?
Dyna-Mac has been trying to attract more shareholders too. In FY2022, it paid a dividend of 0.29 cents — its first since FY2014. It has no dividend policy for now but the amount translates into a payout ratio of 25%. “If the company is at a more ideal stage, we may possibly go up to 50%,” says Lim. He is also open to share buybacks, although shareholders need to give this mandate first.
As of March 29, the late founder’s estate holds a 32.25% stake while Keppel Corporation holds a 24.13% stake.
As at March 31, Lim holds a direct stake of some 7.36 million shares or 0.71%. His stake mostly came from stock options rewarded by the company but he has bought some from the open market for himself too. The most recent was on last November when he paid 18.8 cents each for 500,000 shares. When asked, Lim says he is keen to build up his own stake further.
“If there’s no value in the shares, I would have sold mine already,” he says, adding that he is “independent” and neither related to the founding family nor was he appointed by Keppel.
When Keppel Corp acquired its stake in Dyna-Mac, Keppel O&M, its offshore and marine unit was still a key business. That unit has since been merged with Sembcorp Marine to become what is now known as Seatrium. Keppel itself, meanwhile, is reinventing itself as an asset manager with a target AUM of $200 billion, achieved partly by monetising its existing portfolio of assets and reinvesting the proceeds.
Noting that Keppel CEO Loh Chin Hua is an astute investor, Lim expects the Dyna-Mac stake, acquired in 2011 at 35 cents, to be divested eventually. “[All I can say is] they’re not doing so yet because they probably don’t see any value in doing so yet,” reasons Lim.
On the other hand, Lim says though he has received offers from parties keen to buy “a big block” of shares, he has turned them down. “If it doesn’t create value for my existing shareholders, there is no point,” says Lim.
Managing the long term
The company’s management team, having put Dyna-Mac on more stable footing, is careful not to bite off more than it can chew. For example, with demand going up and capacities throughout the industry being taken up, the company does not plan to follow its competitors by increasing its prices.
“The yards in China are very full now. We also operate in China, so we know that the prices, or costs, are increasing. Many shipyards are responding by raising their rates. But for us, our prices have remained fairly consistent, and it is our philosophy to try and maintain our prices,” says Lim.
“Of course, we want to make profits and we will continue to grow our profits. But how we will do so is not by increasing our prices, but more by controlling our costs. This way, the client sees that you’re not opportunistic although you’re adjusting for inflation. This means they’ll return to us and we get the volume for our projects, which helps defray our overhead costs,” he adds.
Lim believes that by doing so, Dyna-Mac can maintain its reputation and make customers happier to go back to them again for more work. By doing so, the company stands a better chance of operating through the inevitable cycles — a challenge made bigger by the difficulties of accurate forecasting. “When you talk to different people, you get different views. I can only share what I feel. For Dyna-Mac, we are looking at projects that go on till 2027,” he says.
