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Dyna-Mac’s upcycle ride accelerates; firm mulls new markets including pharmaceuticals

Felicia Tan
Felicia Tan • 8 min read
Dyna-Mac’s upcycle ride accelerates; firm mulls new markets including pharmaceuticals
Ensuring a healthy cash flow and profitability remains key to executive chairman and CEO Lim Ah Cheng. Photo: Albert Chua/The Edge Singapore
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Things seem to be on the up and up for Dyna-Mac Holdings NO4 -

, with the builder of topside modules for oil rigs seen to benefit from the current multi-year industry upcycle.

On Feb 20, the company announced that revenue for FY2023 ended Dec 31, 2023, was up 32.1% y-o-y to $385.2 million, as it recognised more progressive payments from ongoing projects. Thanks to better margins, earnings surged 114% y-o-y $28.7 million. Its order book as at the end of last year was $438.2 million.

In a sign of how orders momentum has not only continued but has risen strongly, Dyna-Mac, on April 3, announced additional new contracts that have brought its current order book to a record $896 million. Maybank Securities analyst Jarick Seet estimates that the value of the new contracts stood at some $456.8 million. OCBC Investment Securities analyst Ada Lim puts that number at around $458 million.

Dyna-Mac also announced its first acquisition in more than a decade, when the industry was riding up on the previous cycle, with a bigger ticket size to boot. Back in March 2013, Dyna-Mac completed the $5 million acquisition of Haven Automation Industries. 

On Jan 3, it announced the acquisition of Exterran Offshore for US$8.25 million ($10.9 million), which is physically located next to Dyna-Mac’s Singapore premise along Gul Road. By including Exterran’s 4.5ha, Dyna-Mac has more capacity and flexibility to take on bigger projects. Exterran’s net tangible asset value and book value as at Dec 31, 2023, stood at US$3.65 million, including US$2.51 million in cash.

When The Edge Singapore spoke to Dyna-Mac’s executive chairman and CEO, Lim Ah Cheng, in November 2023, he stressed that while he is on the look-out for targets, he will not be “impatient” and that the targets need to “make sense”. Ensuring a healthy cash flow and profitability remains key to Lim, who had taken on the leadership role at the then-loss-making company when he joined in March 2020 after the passing of founder and then-CEO Desmond Lim in October 2019. Grappling with an industry-wide downturn, Dyna-Mac reported a $24.0 million loss for the FY2019, which deepened to a $58.4 million loss in the FY2020 due to Covid-19.

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The company’s fortunes took a turn for the better from FY2021 onwards when Lim took charge, negotiating contracts directly with potential clients and building relationships instead of taking part in open tenders, and taking on “re-measurement contracts” where the client takes the risk instead of the contractor.

Even when it comes to inorganic growth, Lim is careful to ensure that the target company has to be a business that Dyna-Mac’s management team understands, does not come at a price that is too high, and can generate cash flow and profit immediately. 

And thus, instead of nursing losses, Dyna-Mac, with a cash balance of $216.1 million as at the end of last year, now has the balance sheet strength to make acquisitions instead. Lim sees a lot more palatable acquisition opportunities this year, thanks to the higher interest rate environment and with companies facing challenges and succession planning. 

See also: iFast posts second strong quarter; earning upgrades

“Due to the change in interest rates, there will be more targets. In fact, we are seeing that right now,” says Lim, who is careful to keep the company debt-free.

Pharmaceuticals next?

Some things have changed, however. One of them is Dyna-Mac’s focus on expanding overseas, tapping a pick-up in exploration and production activities. “There are people talking to Dyna-Mac right now about modular construction, because there are two big advantages [we offer],” says Lim, adding that the company was chosen for its schedule certainty and its ability to develop modules and deliver them to remote places.

Lim is mulling a separate market from oil and gas — pharmaceuticals, something it has been exploring since The Edge Singapore spoke to him back in May 2023. Unlike the oil and gas modules of some 3,000 tonnes, modules used for pharmaceuticals come in around 500 to 800 tonnes. They — including equipment — are also assembled on land, which is why they cannot weigh too much, Lim explains.

Working on these projects, or modular process skids, will bring in higher margins. The requirement for clearance is also high. While the standards for oil and gas modules are high, pharmaceutical modules require another level of cleanliness to them.

“It’s a different type of ball game,” says Lim, explaining that the modules may be smaller but the company has the ability to build more of such units.

“Quite a few [companies] have spoken to us… They want a strategic collaboration due in part to the company’s location. So they can tap into our quality and know-how… there’re very few people who can reach that type of standard,” he says.

For more stories about where money flows, click here for Capital Section

Speed matters as well, Lim adds, as the first to develop such pharmaceutical modules will get the rights. “That’s why they see an advantage in [our services],” he says.

To work on such modules, the company will need a clean and big workshop. “So we can probably take over or buy some companies that have big workshops and are doing clean environment [products] and things like that,” says Lim.

Mulling the move into the pharmaceuticals industry does not mean the company is deviating from its previous plans for other businesses such as building so-called “exotic piping” used in fuel-carrying systems. Such pipes are built with tougher specifications to combat the corroding from hydrogen and ammonia, touted as two greener alternative fuels.

Lim is also focused on building a bigger recurring income stream via servicing and maintenance work of plants. Instead of building up its own record slowly by talking to its end-customers, he suggests that it is better to acquire a company with a good track record than start its own organically.

However, Lim continues to believe in the power of partnerships. “We emphasise on strategic collaborations. Our style is not to do engineering, procurement and construction (EPC) on our own. We always work with partners and do what we do best. [It’s a] very conservative, very prudent way.”

This philosophy applies to the company’s competitors in nearby places such as China. According to Lim, Dyna-Mac’s competitors in China are exploring ways to collaborate on projects, something which is “unusual”.

“I don’t take it as competition. We create value together… and grow the pie together,” he says. “With the geopolitical tensions happening, there are companies that want to come out and develop a market in India and the Middle East, for example. So the Chinese will see that there is a big advantage in tapping expertise from Singapore to do so. We must not underestimate our advantage as Singapore companies,” he declares, citing Singapore’s neutrality,  working with the Chinese, Indians and the Middle Eastern countries.

“Of course, with Singapore’s unique position, we can build products from the US [as well]… So this is a good thing for us [and another] potential,” he adds, noting that he has already seen a few yards approaching the company for discussions.

Even though the current FPSO (floating production storage and offloading) wave is tipped to last a few years, Lim is already thinking several steps ahead by ensuring the company still has business should the downcycle arrive.

One way to do so is to use Dyna-Mac’s core competency to explore areas that are “very niche” and are very difficult to do. Related discussions are ongoing, says Lim.

‘The best is yet to be’

Following the April 3 contract wins announcement, analysts have become more positive on Dyna-Mac, with Maybank’s Seet and OCBC’s Lim increasing their target prices yet again in the span of less than two months. 

In his April 3 note, Seet says that thanks to tailwinds from the oil rig market, Dyna-Mac should bring in another $100 million to $200 million in new contracts by the end of the current FY2024. 

“We believe that Dyna-Mac will continue to benefit from the strong FPSO demand and should continue to rerate accordingly as it executes its larger-sized contracts and achieves better profitability despite the strong share price performance,” Seet writes, while lifting his patmi estimates for FY2025 and FY2026 by 7.3% and 7.4% to $43 million and $49 million respectively. His new target price, accordingly, has increased from 42 cents to 46 cents.

OCBC’s Lim, in her April 4 report, has upped her target price to 44.5 cents from 42 cents following the order wins, which reflects “further upside potential for the company amidst a stronger-than-expected upcycle”.

“[Dyna-Mac’s] strategy to remain focused on niche topside module construction and to differentiate itself through its commitment to quality, as well as reliable and timely deliveries, positions it well to capture burgeoning demand for FPSO modules amid a shortage in capacity,” OCBC’s Lim notes, adding that the company’s expanded yard capacity is a “positive” for topline growth.

She also sees “great potential” for the company to grow inorganically and “in a manner that is accretive to earnings in the near future”, backed by its healthy net cash position.

“Our forecasts take into consideration the issuance of bonus warrants. In our view, existing investors can consider exercising their warrants to avoid dilution and to participate in the company’s future growth,” she adds.

In his initiation report on March 18, Lim & Tan Securities analyst Nicholas Yon believes the “best is yet to be” for Dyna-Mac. “With newer and bigger yard capacities and strong orders ahead, we believe earnings trajectory remains robust along with potential for higher dividend,” says Yon, who has a 45 cents target price. 

Dyna-Mac shares closed at 41.5 cents on April 9, valuing the company at 15.1x historical earnings and giving it a market cap of $430.3 million.

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