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This small-cap O&M play is finally ready to ride an industry upcycle

Michelle Zhu
Michelle Zhu • 2 min read
This small-cap O&M play is finally ready to ride an industry upcycle
SINGAPORE (Mar 22): CIMB Research is initiating coverage on Dyna-Mac Holdings (DMHL) at “add” with an 18-cent price target, which is based on 1.8 times CY18 book value, DMHL’s CY12-17 mean.
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SINGAPORE (Mar 22): CIMB Research is initiating coverage on Dyna-Mac Holdings (DMHL) at “add” with an 18-cent price target, which is based on 1.8 times CY18 book value, DMHL’s CY12-17 mean.

DMHL, a provider of engineering & construction services to the offshore oil & natural gas sectors, is 24.4% owned by Keppel Corporation.

In a Thursday report, lead analyst Cezzane See notes that DMHL’s share price has been trading within the 11-18 cent range since Aug 2016, and believes the counter’s risk-reward profile is now skewed to the upside given its better financial footing as of late.

In her view, DMHL is a safe small-cap proxy for an upcoming floating production storage and offloading (FPSO) upswing in the offshore & marine industry. Potential re-rating catalysts include higher contract wins and return of dividend payouts, she adds.

The analyst is projecting for CY18, 19 and 20 revenue to hit $100 million, $150 million and $160 million respectively.

At a net profit level, she forecasts narrower losses in CY18F of $3.5 million as she remains cautions about the group’s 4Q18 contract pipeline, but believes the group could return to positive net profit in CY19-20 at $5.8-8.1 million due to operating leverage.

See also: DBS reminds AEM investors not to 'lose sight of the bigger picture' as it maintains 'hold' call despite new customer win

As at end CY17, the group had a net cash per share of 3 cents which is 23.2% of its last closing price of 13 cents. Its book value stood at about $100 million after implementing $38 million worth of impairment exercises over CY15-17, and clearing $50 million in bonds in CY16.

CIMB therefore sees little risk of impairment going forward.

“We believe the cleaner balance sheet improves [DMHL’s] operating leverage when contract wins emerge. $32 million worth of assets are earmarked for sale, which could lift its net cash position further once monetised, in our view. We would not be surprised if a return to net profit leads to the return of dividend payouts,” says See.

As at 11.28am, shares in DMHL are trading 1 cent higher at 14 cents, or 1.43 times FY18 book.

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