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&rsquo s Singapore premise along Gul Road. By including Exterran&rsquo s 4.5ha, Dyna-Mac has more capacity and flexibility to take on bigger projects. Exterran&rsquo 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&rsquo 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 &ldquo impatient&rdquo and that the targets need to &ldquo make sense&rdquo . 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&rsquo 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 &ldquo re-measurement contracts&rdquo 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&rsquo 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. 

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

Pharmaceuticals next?

Some things have changed, however. One of them is Dyna-Mac&rsquo s focus on expanding overseas, tapping a pick-up in exploration and production activities. &ldquo There are people talking to Dyna-Mac right now about modular construction, because there are two big advantages [we offer],&rdquo 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 &mdash 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 &mdash including equipment &mdash 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.

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

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

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

To work on such modules, the company will need a clean and big workshop. &ldquo So we can probably take over or buy some companies that have big workshops and are doing clean environment [products] and things like that,&rdquo 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 &ldquo exotic piping&rdquo 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. &ldquo 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&rsquo s a] very conservative, very prudent way.&rdquo

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

&ldquo I don&rsquo t take it as competition. We create value together&hellip and grow the pie together,&rdquo he says. &ldquo 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,&rdquo he declares, citing Singapore&rsquo s neutrality,  working with the Chinese, Indians and the Middle Eastern countries.

&ldquo Of course, with Singapore&rsquo s unique position, we can build products from the US [as well]&hellip So this is a good thing for us [and another] potential,&rdquo 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&rsquo s core competency to explore areas that are  &ldquo very niche&rdquo and are very difficult to do. Related discussions are ongoing, says Lim.

&lsquo The best is yet to be&rsquo

Following the April 3 contract wins announcement, analysts have become more positive on Dyna-Mac, with Maybank&rsquo s Seet and OCBC&rsquo 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. 

&ldquo 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,&rdquo 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&rsquo 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 &ldquo further upside potential for the company amidst a stronger-than-expected upcycle&rdquo .

&ldquo [Dyna-Mac&rsquo 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,&rdquo OCBC&rsquo s Lim notes, adding that the company&rsquo s expanded yard capacity is a &ldquo positive&rdquo for topline growth.

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

&ldquo 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&rsquo s future growth,&rdquo she adds.

In his initiation report on March 18, Lim & Tan Securities analyst Nicholas Yon believes the &ldquo best is yet to be&rdquo for Dyna-Mac. &ldquo With newer and bigger yard capacities and strong orders ahead, we believe earnings trajectory remains robust along with potential for higher dividend,&rdquo 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.