Dyna-Mac contract wins worth USD31.6m.

Recent developments: Dyna-Mac recently announced contract wins worth about USD31.6m from SBM Offshore and Bumi Armada. This came after Keppel Corp’s contract win to refurbish and upgrade an FPSO for the same two customers. However, Dyna-Mac’s 1Q12 results were disappointing with net profit registering a 51% YoY fall. Note that its fiscal year-end has been changed from May to December.

Slow recognition of contracts in early stages. Dyna-Mac’s 1Q12 results again fell below consensus expectations. The weak performance was due to slower revenue recognition as most contracts are in the early stages. This was the second quarterly results that disappointed. In the previous quarter, after the release of the results, share price tumbled from SGD0.55 to
the current level over two days.

Signs of better performance ahead. However, we see several positive signs ahead. Dyna-Mac’s orderbook stood at a record SGD201m as at 1Q12, with the bulk expected to be recognised in FY12. The company has also rented additional yard space of 100,000 sq ft to cope with its orderbook.

Optimistic macro outlook. On the macro front, there are reasons to be optimistic given the positive outlook for deepwater oil exploration and production, which would increase the demand for FPSOs and FSOs. This trend could be confirmed by more FPSO and FSO orders for Keppel and Sembcorp Marine in the months ahead.

Sustained rich valuation. Compared to Technics Oil & Gas and Hiap Seng, Dyna-Mac’s valuation looks rich but it has been able to command a premium over these peers. Perhaps its association with Keppel helps or could there be some corporate actions of which we are unaware?

The stock price has continued to move upward from the lows last December and the trend appears to be steepening. The RSI indicator looks set to pull back from the extremely overbought level, signalling that the recent rally from SGD0.45 (52-week high) to the present level may be exhausted. A short pullback towards the SGD0.35 support level should be healthy before another round of price increase. Sustained trading above SGD0.45 will pave the way to the SGD0.55 area.