Ada Lim of OCBC Investment Research has reiterated her ' buy' call and 50.5 cents target price on Dyna-Mac Holdings.

 

In her Sept 22 note, Lim notes that although the topside module builder' s share price has retraced from a recent peak of 44 cents on Aug 10, the share price has doubled year to date (YTD). Nonetheless, Lim sees further upside given a stronger-than-expected upcycle and potential catalysts ahead for Dyna-Mac, which is net-cash.

 

Last month, Dyna-Mac announced a partnership with fellow listed O& M player Kim Heng to use the latter' s yard space to fulfill its growing order book.

 

By doing so, Dyna-Mac can take on more projects while minimising some volatility in terms of costs.

 

Dyna-Mac, Lim recalls, had already announced plans to secure additional space from JTC.

 

" We see these developments as a positive for Dyna-Mac to grow its top-line significantly in the coming years, given that the company is currently constrained by limited yard space and running at more than 100% of its capacity (as it is utilising partners&rsquo yard space)," says Lim.

 

While Dyna-Mac has chosen to stay focused on its niche of building topside modules for the rigs, the company has already taken steps to " future proof" its business too.

 

Specifically, the company is partnering with BW Offshore Holdings so that the two companies can leverage each other&rsquo s technical know-how and expertise to jointly pursue carbon capture and storage (CCS) projects in Australia and other markets.

 

" This will support Dyna-Mac&rsquo s development of its capabilities in the renewables space, positioning it to capture future demand as CCS and hydrogen-related investments become more mainstream and commercially viable," says Lim.

 

Overall, she believes that given the growing demand for energy, especially in Asia, the long-term fundamentals for the offshore oil and gas (O& G) industry remain sound.

 

Furthermore, there' s near near-term lift from catch-up spending by the industry that has held back from investing in capacity amid the previous slump in energy prices.

 

" Continued exploration breakthroughs in places like Namibia&rsquo s Orange Basin and the East Mediterranean are also likely to support the current upcycle," says Lim.

 

Dyna-Mac' s recent retracement in its share price from a recent peak in early August " may present opportunities for investors to gain exposure to the stock," she reasons.

 

The stock is now trading at a forward PE of 15.5x, which is slightly more than one standard deviation below the five-year historical average of 23.4x &ndash suggesting that current valuations remain undemanding, adds Lim.