Dyna-Mac Holdings' net profit fell 24% to S$6.7m

Low orderbook spurred project delays.

According to OCBC Investment Research, Dyna-Mac Holdings reported 1Q13 results that were slightly below its expectations. 1Q13 revenue fell by 19% QoQ to S$60.1m, while net profit fell 24% QoQ to S$6.7m; as there is little or no seasonality involved in Dyna-Mac’s business, OCBC believes a QoQ comparison better illustrates the changes in the group’s performance.

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Gross margin was 24.4% in 1Q13 (4Q12: 23.1%), within the typical range of 20-30%. The group also suffered a fair value loss on financial instruments of S$1.2m in 1Q13 due to unfavourable movements on the contracted USD forward rates against spot rates.

Declining order-book. As we mentioned in our previous report, the group’s low order-book makes it vulnerable to any delays in the awards of new contracts, and could potentially result in yard underutilization. As of 14 May-13, its order-book fell to S$113m (27 Feb-13: S$134m), providing cover for under two quarters.

To be fair, delays in the award of contracts are quite common in the industry for a number of reasons, including re-tendering and changes
in design specifications or project schedules.

We also understand that Dyna-Mac is tendering for a number of large projects and expects to rebuild its order-book significantly in 2H13.

Maintain HOLD with lower S$0.44 FV. While we are positive over Dyna-Mac’s medium- to long-term outlook given the large backlog of floater orders across the industry, we are also mindful that its low order-book may pose a risk to near-term earnings. In addition, the group’s expansion into Malaysia and Guangzhou remains a work-in-progress, and bottom-line earnings growth may only be evident in FY14-15F.