Hanwha Group&rsquo s offer of 60 cents for Dyna-Mac lacks an &ldquo attractive control premium&rdquo , says the estate of Dyna-Mac&rsquo s founding shareholder, Desmond Lim Tze Jong, in an Oct 10 statement.

 

The estate issued a follow-up statement stressing that the offer is not &ldquo compelling&rdquo after Hanwha issued its offer document on Oct 2. In the offer document, the group kept its offer price, although it did not say that it was the final offer.

 

&ldquo The offer from Hanwha of 60 cents represents only a 6.2% premium to the one-month volume weighted average price (VWAP) and 14.1% premium to the three-month VWAP,&rdquo says the estate. &ldquo This does not appear to have factored an attractive control premium, which according to the Corporate Finance Institute2 would average between 20% to 30% of a target&rsquo s share price.&rdquo

 

In its latest announcement, the late founder&rsquo s estate pointed out that Dyna-Mac&rsquo s share price has been consistently trading over Hanwha&rsquo s offer price since the offer was made on Sept 11. According to the estate, this reflects Dyna-Mac&rsquo s investors&rsquo confidence in the company&rsquo s growth potential.

 

Referring to the analysts&rsquo share price targets of between 64 cents to 71.5 cents, the estate attributes Dyna-Mac&rsquo s accomplishment to its current management team and its &ldquo foresight and approach to customers and contracts&rdquo .

 

However, in its offer document, Hanwha pointed out that no other party has announced an offer for Dyna-Mac and added that there were &ldquo volatility risks&rdquo present in the economy and industry. Furthermore, there are low barriers to entry in Dyna-Mac&rsquo s business, which is in the upstream market for the fabrication of offshore topside modules.

 

That said, the Korean conglomerate noted that Dyna-Mac now requires a &ldquo global scale&rdquo to continue to grow in the current industry landscape.

 

&ldquo Like Hanwha, the Estate believes that Dyna-Mac possesses all the right qualities to become a global player in the offshore marine industry and it is clear that both Hanwha and the Estate share a common aspiration for the group to reach greater heights as a Singapore home-grown enterprise,&rdquo reads the announcement,&rdquo says the estate in its Oct 10 statement.

 

It adds that Dyna-Mac&rsquo s positioning in Singapore is a &ldquo good fit&rdquo with Hanwha&rsquo s strategy of having multiple yards in strategic locations like the city-state.

 

&ldquo Dyna-Mac&rsquo s intrinsic, additional and synergistic value to Hanwha should be given extra consideration when computing the control premium. Securing control of Dyna-Mac could enable Hanwha to realise synergies that can be created, including economies of scale, improving productivity and cost efficiency, as well as strengthening engineering competencies,&rdquo adds the estate&rsquo s spokesperson.

Dyna-Mac is a global multi-disciplinary contractor specialising in engineering, procurement, fabrication, construction, and onshore pre-commissioning and commissioning of offshore topside modules and facilities.  

 

1. What is Dyna-Mac&rsquo s business about and what are some key business divisions?

 

Dyna-Mac&rsquo s expertise encompasses FPSOs (floating production storage and offloading vessels), FSOs (floating storage and offloading vessels), FLNGs (floating liquefied natural gas vessels), and FSRUs (floating storage and regasification units). We excel in offshore topside module fabrication and construction, as well as onshore module fabrication for land-based plants in the hydrocarbons industry, with a focus on LNG, green and blue hydrogen, and ammonia.

 

Our piping solutions division fabricates exotic and non-exotic pipe spools for both onshore and offshore projects, including carbon capture and storage initiatives. Known for innovative and cost-effective solutions, we leverage advanced engineering tools and industry best practices to meet client needs across these diverse sectors.

 

2. Could you share some key drivers behind Dyna-Mac&rsquo s 3.8x y-o-y jump in 1H2024 net profit?

 

Dyna-Mac&rsquo s 3.8x y-o-y increase in net profit for 1H2024 stems from several factors. We successfully completed major projects, boosting revenue by 42.5% to $259.7 million. Our gross profit soared by 191.3% to $71.7 million, thanks to improved project execution and cost management.

 

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Other income rose 116.3% to $7.6 million, driven by higher interest income, forex gains and increased scrap income. Net profit reached $38.8 million, a 280.3% increase from 1H2023, due to project completions, enhanced productivity and increased project volume. Our strong order book of $681.3 million as of June 2024 reflects sustained demand for our services, particularly FPSO topside modules.

 

3. Dyna-Mac has traditionally been based in Singapore, but it seems there are plans for international expansion. Can you share more about this?

 

Our expansion strategy is tailored to each region&rsquo s strengths and opportunities. In Singapore, we have delivered 17 modules weighing 41,000 metric tonnes with zero lost-time incidents in 1H2024, underpinning our future-proofing strategy focused on sustainable growth through hydrogen and carbon capture projects.

 

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In China, we offer value-added services by leveraging our expertise and collaborating with local partners to build modules, optimising costs and timelines.

 

Our Middle East focus remains on oil and gas, utilising the region&rsquo s excellent facilities and infrastructure for module fabrication, supported by skilled personnel from Singapore. This diversified approach positions us for sustainable growth and value creation across markets.

 

4. What is the competitive advantage of being a pure-play versus an integrated player in your industry, and who are your main competitors?

 

As a pure-play company, Dyna-Mac&rsquo s competitive advantages include specialisation, agility, transparency and focused resource allocation. Our deep industry expertise allows us to deliver high-quality, innovative solutions. We can swiftly adapt to market changes and customer needs. Our focused approach offers clear performance visibility to stakeholders and enables efficient operations.

 

While we face competition from several Chinese firms in the offshore and marine engineering sector, our concentrated expertise in the hydrocarbons industry positions us uniquely. This specialisation, combined with our adaptability and efficiency, sets us apart in a competitive market.

 

5. Could you give an overview of the current industry trends? How is Dyna-Mac well-positioned to capture these?

 

Current industry trends include a focus on energy transition, digital transformation, sustainability and environmental, social and governance (ESG) considerations. Geopolitical factors and supply chain resilience are also key concerns, alongside innovations in materials and technologies. There is increased demand for natural gas as a transition fuel. Dyna-Mac is well-positioned to capture these trends through our expertise in low-carbon solutions, particularly in hydrogen and ammonia projects.

 

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We leverage advanced engineering tools and digital technologies to enhance efficiency. Our strong order book and expanded fabrication capacity (up by 70%) enable us to meet increasing demand. Our commitment to high safety and environmental standards aligns with the industry&rsquo s growing ESG focus, positioning us favourably in this evolving landscape.

 

6. Tell us more about Dyna-Mac&rsquo s cost-plus pricing strategy.

 

Dyna-Mac adopts a cost-plus pricing strategy for certain projects. This method applies to some materials and involves charging the costs incurred plus an agreed-upon profit margin. This strategy not only guards against price volatility but also ensures transparency for our clients, aligning with best practices in financial management and managing client relationships.

 

7. Sustainability and ESG have increasingly been a key focus. How is your company committed to sustainability?

 

Dyna-Mac is deeply committed to sustainability across ESG domains. Our environmental initiatives include decarbonisation efforts, energy and carbon footprint management, and robust waste and effluents management. We prioritise employee health and safety and promote fair employment practices.

 

Our strong corporate governance ensures transparency and ethical business practices, as recognised by our recent Most Transparent Company Award (Energy) in September 2024 from the Securities Investors Association of Singapore (SIAS). We actively engage stakeholders and innovate in clean energy, venturing into green hydrogen and ammonia projects. Through strategic partnerships, we continually enhance our sustainable capabilities, balancing growth with environmental stewardship and social responsibility.

 

8. What are Dyna-Mac&rsquo s plans for capital allocation?

 

Dyna-Mac&rsquo s strategic capital allocation focuses on sustained growth and shareholder value. We are investing in yard development, expanding fabrication capacity by 70% to meet growing demand. We&rsquo re enhancing productivity through advanced technologies and equipment upgrades.

 

We are exploring M& A opportunities, particularly targeting companies offering recurring income streams like plant maintenance services. We maintain a healthy working capital position to ensure smooth operations. Additionally, we are committed to rewarding shareholders through dividends. This balanced approach supports our growth objectives, enhances operational efficiency and delivers value to shareholders.

 

9. Why should investors take a closer look at Dyna-Mac?

 

Dyna-Mac offers a compelling investment opportunity due to our solid financial performance in 1H2024. Our strong $307.7 million net cash position as of June 30 enables us to seize opportunities. We operate in the thriving FPSO market, with a robust $681.3 million order book extending through FY2026.

 

We are strategically diversifying into clean energy sectors like carbon capture and storage and hydrogen solutions. Our commitment to sustainability aligns with global trends towards cleaner energy. We leverage advanced technologies for enhanced project execution and efficiency, maintaining our competitive edge in the market.

 

10. In September, Dyna-Mac received a voluntary conditional offer of $0.60 per share from substantial shareholder Hanwha Group, which is seeking management control. What does this mean for investors?

 

The company has appointed an independent financial adviser (IFA) to assess the offer, and we are awaiting their guidance. At this point, it is important to note that the company continues to operate as usual. We encourage investors to stay informed through the official SGX announcements, where any updates or developments will be communicated transparently.   

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