Dyna-Mac Holdings Ltd - CGS-CIMB Research 2018-08-30: Narrowed Losses; Still Awaiting FPSO Project Pipeline

Dyna-Mac Holdings Ltd - CGS-CIMB Research 2018-08-30: Narrowed Losses; Still Awaiting FPSO Project Pipeline DYNA-MAC HOLDINGS LTD. SGX:NO4

Dyna-Mac Holdings Ltd - Narrowed Losses; Still Awaiting FPSO Project Pipeline

  • Dyna-Mac Holdings (DMHL)’s core net loss narrowed in 1H18 to S$0.2m (1H17: -$22.4m).
  • While the 1H18 net loss accounts for 5.7% of our FY18F loss forecast, we deem the results to be weaker than expected as we now think GPM will remain slim in 2H18.
  • Its S$40.3m order book as at end-1H18 should last till end-CY18. Dyna-Mac is still actively on the lookout for FPSO and onshore projects.
  • Exxonmobil has gone ahead with Liza Phase 2 (Dyna-Mac is working on Phase 1). Upstream Online also mentioned Dyna-Mac is bidding for the Buzious-5 FPSO project.
  • We keep our ADD call but with a lower target price of S$0.13, now based on 1.3x CY18F P/BV (-0.5 s.d. from 5-year mean).

Losses narrow but GPM weakens

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  • Dyna-Mac Holdings (DMHL)’s 1H18 revenue of S$60m (vs 2H17: S$15.9m, 1H17: S$15.5m) made up 60% of our full-year forecast. Its gross profit margin (GPM) of 18% was below our 19% estimate but higher revenue mitigated the bottomline impact. 
  • Our core net loss excludes a S$1.5m gain from the reversal of impairment losses on PPE and prepayment written off in FY17.

Still in a net cash position, its safety net

  • Dyna-Mac was still in a net cash position of 2.6 Scts/share at end-Jun. 
  • Management guided that the assets earmarked for sale (S$32m), are still pending approval. This asset sale could lift Dyna-Mac’s net cash position further and provide it the stability to ride out delays in order wins, in our view.

Existing order book fuels 2H18 revenue

  • End-1H18 order book of S$40.3m extends to 4Q18. The order book mainly comprises the Liza project (YTD 45% completion) and fuels our FY18F revenue forecast of S$100m. 
  • Dyna-Mac has no material YTD new order wins.

FPSO pipeline still looks encouraging…

  • ExxonMobil announced the Liza Phase 2 FID in Jul 18. There was also news from Upstream Online that Dyna-Mac was bidding for the topside fabrication work of Petrobras’s Buzios-5 FPSO. Both projects have larger production capabilities vs. Liza 1.
  • In Aug 18, Clarksons said that 33 floating production, storage and offloading vessel (FPSO) and floating liquefied natural gas unit (FLNG) projects worth US$25bn in total could be awarded in CY18-20F (excluding redeployment awards).

… but competition remains keen

  • From the projects that we tracked, we noted keener competition with more Chinese names emerging in FY18. For instance, FPSO Liza 2’s hull is being done by Shanghai Waigaoqiao Shipbuilding whilst Dyna-Mac’s rival for Buzious-5’s topside fabrication is Chinese company Bomesc Offshore Engineering. We believe this keen competition is one of the reasons why GPM is still under pressure.
  • We turn conservative and cut our CY18-20F GPMs to c.18.0% (from 19.0%/19.3%/19.8% in FY18F/19F/20F), which reduces our FY18F LPS forecast by 31% and cuts our FY19-20F EPS by 30-31%.

Maintain ADD but with lower target price

  • Our thesis for Dyna-Mac is that its cleaner balance sheet improves its operating leverage when contract wins emerge but, given the stiff competition, this could take longer than expected.
  • We lower our Target Price from S$0.18 to S$0.13, now based on 1.3x CY18F P/BV at a wider c.40% discount (previously 30%) to our target P/BV of 2.2x for Keppel’s operation and maintenance (O&M) business. This coincides with Dyna-Mac’s -0.5 s.d. level.

Catalysts and risks

  • Potential re-rating catalysts are higher contract wins and the return of dividend payouts.
  • Downside risks are fewer contract wins (due to timeline slippages and fierce competition) and lower margins.

Cezzane SEE CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-30
SGX Stock Analyst Report ADD Maintain ADD 0.13 Down 0.180