Dyna-Mac Holdings - OCBC Investment 2015-11-13: More uncertainty ahead

Dyna-Mac Holdings - OCBC Investment 2015-11-13: More uncertainty ahead DYNA-MAC HOLDINGS LTD NO4.SI 

Dyna-Mac Holdings: More uncertainty ahead 

 3Q15 sequentially better 
 Seeks to amend terms in bonds 
 Has to secure new orders 

Returns to net profit in 3Q15 

  • After turning in a net loss of S$5.3m in 2Q15, Dyna-Mac Holdings delivered a net profit of S$0.5m on the back of a 5.5% YoY (+130% QoQ) rise in revenue to S$83.8m in 3Q15. 
  • As mentioned in our earlier report, we were expecting 3Q15 to be sequentially better, and the improved results was due to the gradual acceleration in progressive recognition of projects after initial delays in receipt of engineering drawings and free-issued materials in 2Q15. 

S$50m notes reclassified under current liabilities 

  • Meanwhile, Dyna-Mac’s S$50m 4.25% Series 1 notes (due 2017) were reclassified from non-current to current liabilities in the quarter, as the notes may be payable immediately if an event of default is being declared. This may occur as the group was unable to meet two of the three financial covenants under the terms, and it has commenced a consent solicitation exercise to seek approval from bondholders on the amendments of certain terms. 

S$251m backlog till 2016 

  • Dyna-Mac has secured new orders worth S$161m YTD, comprising S$89m for 10 FPSO topside modules in the UK, S$60m for six units of modules in offshore Angola, and a S$12m fabrication work for a project in Singapore. This brings its net order book to S$251m as of end Sep 2015 with completion and deliveries till 2016. 
  • Should market sentiment remain weak and new orders remain unforthcoming, there could be a gap in activity levels. Also, with the oil price rout, there is likely to be margin pressure for new orders as customers seek to negotiate for lower-priced contracts. 

Maintain HOLD 

  • Despite this, Dyna-Mac is recognised for its technical capabilities and established client relationships, as seen by current shareholder Keppel Corp’s right first of refusal to acquire the company should Dyna-Mac’s founder and CEO, Mr. Lim Tze Jong, decide to sell his stake in the company. 
  • Maintain HOLD with S$0.18 fair value estimate, based on 1.0x P/B.

Low Pei Han CFA OCBC Securities | http://www.ocbcresearch.com/ 2015-11-13
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.18 Same 0.18