• Recognised VO costs upfront
• In net cash position
• Order book declining fast

US$5.1m net loss in 1Q16

Dyna-Mac Holdings reported a 117.9% YoY rise in revenue to S$86.7m but saw a 42.1% drop in gross profit to S$8.4m in 1Q16, the latter mainly due to higher costs recognized ahead of confirmation of revenue from project variation orders which will take place only upon completion of the projects in the later part of 2016.

Along with a S$6.9m foreign exchange loss, the group saw a net loss of S$5.1m in 1Q16, compared to net profit of S$1.7m in 1Q15. Revenue rose significantly due to the accelerated progress on all the projects which were delayed last year.

In net cash position

The group only has one bond (S$50m), which is maturing in Aug 2017. Other than that, it has bank loans of about S$35m. With cash of about S$120m, Dyna-Mac was in a net cash position as of 1Q16.

This was aided by a significant decrease in trade receivables (S$18.8m) in the quarter as the group collected money from a few key customers. Unlike some other companies in the industry, we understand that the group has not requested for a lengthening in the tenor of its bank loans.

Needs to secure orders soon

As of end 1Q16, Dyna-Mac had a net order book of S$77m, which will be recognized by the end of this year. This figure does not include the variation orders whose costs have been recognised in 1Q16. Currently, the group is still busy with its projects on hand, but its order book is running down fast and it has to secure orders soon to avoid a gap in activity levels.

Meanwhile, Dyna-Mac has embarked on rightsizing efforts to match the work volume, which is likely to taper off in 3Q16 should no new orders be secured by then. Given the increasing risk of minimal new orders to support yard utilization, we lower our valuation from 1.0x to 0.8x P/B, such that our fair value estimate drops from S$0.18 to S$0.14. Maintain HOLD.

Source: OCBC Research - 16 May 2016