• Enquiries remain high
• Forecasted div yield ~5.3%
• Upgrade to BUY

3Q14 results in line

Dyna-Mac Holdings reported an 18.9% YoY rise in revenue to S$79.4m and a 43.6% increase in net profit to S$7.6m in 3Q14, bringing 9M14 net profit to S$20.8m, accounting for 72% of our full year estimate. Stripping out one-off items, core PATMI met 75% of our full year figure, in line with expectations. Revenue was higher as more projects were executed in the Singapore and overseas yards, but gross margin was lower at 22.2% in 3Q14 vs 30.2% in 3Q14 due to higher recognition of costs from overseas yards.

Room for Malaysian yard to grow

The Malaysian yard, which is still under development, saw a utilitisation rate of about 30% for the year, compared to almost full utilisation rates for the two Singapore yards, Chinese yard and the Philippines yard (Keppel Subic). A similar partnership structure with Keppel in Brazil is possible, should there be local content requirements for Brazil work.

Still expecting to secure orders

Looking ahead, the group is still upbeat on order wins in 2015 despite lower oil prices, as it services the production stage of the oil and gas value chain. Enquiries also “remain high”. It has a net order book of S$223m with deliveries till 2016, and the group has also secured letters of intent (LOI) for the construction of FPSO modules from repeat customers. Two of the contracts are likely to be inked by the end of this year, and we estimate a combined contract value of about S$100-150m. YTD, the group has secured contracts of $92m, excluding the LOIs.

Upgrade to BUY

Dyna-Mac’s share price has corrected 14% since our last hold rating on the company in early Sep, and now with the potential upside of more than 20% (this includes dividends) to our unchanged fair value estimate of S$0.445, we upgrade the stock to BUY. The group has also paid out dividends of S$0.02/share per year in the past two years, and we expect the same for FY14, translating to an attractive dividend yield of about 5.3%.

Source: OCBC Research - 17 Nov 2014