• 2Q14 PATMI down 19.9% YoY
• Net order book of S$266m
• Lower FV but maintain BUY

2Q14 PATMI below our expectations

Dyna-Mac Holdings reported a 27.1% YoY increase in its revenue to S$97.4m for 2Q14. However, PATMI dipped 19.9% to S$6.0m and fell short of our expectations. This was largely due to a sharp 57.4% jump in administrative expenses to S$10m. Management attributed this to an accrual of project bonus amounting to S$3m. Hence, Dyna-Mac’s PATMI margin fell 3.6 ppt to 6.2%. For 1H14, revenue surged 29.0% to S$176.3m. PATMI was down 7.5% to S$13.2m, and formed 43.7% of our FY14 forecast. Management updated us that it has now adopted a more conservative approach in recognising its variation orders (success rate assumption reduced from 50% to 30%). This is because one of its key customers is taking a longer time to make payments and approve projects as it is undergoing an internal restructuring. Hence, Dyna-Mac took on more borrowings and had a net gearing ratio of 13.8% (as at 30 Jun 2014), as compared to a net cash position of S$14.4m at end 1Q14).

Order enquiries still healthy

Dyna-Mac’s current order book stands at S$266m (as at 13 Aug 2014), as compared to S$246m in Aug 2013 and S$342m in May 2014. It continues to receive active and positive tender enquires. Although Dyna-Mac has clinched only S$92m of orders YTD, we retain our S$240m full-year contract wins forecast, as we believe Dyna-Mac has a strong chance of securing more FPSO projects in the North Sea and Africa regions in 2H14.

Maintain BUY

We lower our FY14 and FY15 PATMI projections by 3.8% and 1.3%, respectively, as we input lower gross margins and higher opex assumptions in our financial model. Given our reduced growth forecast and Dyna-Mac’s weaker financial position (albeit still at a healthy level), we also ascribe a lower PER target peg of 15x (previously 16x), which is ~0.25 standard deviations below its historical average forward PER since listing. Rolling forward our valuations to 15x blended FY14/15F EPS, we derive a revised fair value estimate of S$0.445 (previously S$0.47). Maintain BUY.

Source: OCBC Research - 18 Aug 2014