add safe small-cap proxy for coming fpso upswing · external consultants and industry players...

Company Note Offshore & Marine│Singapore│March 21, 2018

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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INITIATION

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Dyna-Mac Holdings Ltd Safe small-cap proxy for coming FPSO upswing ■ Dyna-Mac Holdings (DMHL) fabricates/assembles topside modules for floating

production solutions and specialised structures for subsea projects. ■ External consultants and industry players forecast that at least 7-11 floating solution

contracts may be awarded p.a. in CY18-21F, as crude oil prices have recovered. ■ DMHL has 17+ years of delivering topside modules and has forged relationships with

customers since 2000 giving it credence in the upcoming contracting cycle. ■ Contracts worth S$90m have already secured for CY18F and DMHL is now in a net

cash per share position (23.2% of share price). We expect narrower losses in CY18F. ■ Initiate with Add and S$0.18 TP, based on 1.8x CY18F P/BV.

Initiate with Add and TP of S$0.18 We initiate with an Add rating and TP of S$0.18 based on 1.8x CY18F P/BV (DMHL’s CY12-17 mean), at a c.30% discount to our target P/BV of 2.5x for Keppel’s operation and maintenance (O&M) business. DMHL’s share price has been trading within the S$0.11-0.18 range since Aug 2016. Given the better financial footing now, we believe DMHL’s risk-reward is skewed to the upside. Potential re-rating catalysts are higher contract wins and return of dividend payouts. A downside risk is lower contract wins.

Topside module subcontractor with direct links to owners The topside modules that DMHL fabricates are for floating production storage and offloading (FPSO) and floating production storage (FSO) vessels, while its specialised structures are for semi-submersibles and sub-sea products. DMHL is commonly identified as a fabricator which complements larger yards Keppel Corp (KEP) and Sembcorp Marine (SMM SP, Add, TP: S$$3.01) and its long, direct relationships (c.17 years) with FPSO owners have led to direct contract wins separate from conversion contracts awarded to KEP and SMM.

Riding the FPSO upcycle Energy Maritime Associates (EMA, Unlisted) and SBM Offshore (SBMO NA, Not Rated) forecast at least 7-11 floating solution contracts to be awarded annually in CY18-21F. In CY17, seven FPSO contracts were awarded, up from the low of 3-4 p.a. in CY15/16. DMHL saw higher contract wins of c.S$101m in CY17 (vs. S$13m in CY16). Management guided that there is now at least S$500m worth of module work up for bids.

Net cash position at end-CY17 At end-CY17, it had net cash per share of 3.0 Scts (23.2% of current share price). We believe the cleaner balance sheet improves its operating leverage when contract wins emerge. S$32m worth of assets are earmarked for sale, which could lift its net cash position further once monetised, in our view. We would not be surprised if a return to net profit leads to the return of dividend payouts.

Around 90% of CY18F revenue is in the bag We project CY18/19/20F revenue of S$100m/150m/160m. Around 90% of CY18F revenue is already secured (end-CY17 order backlog: S$90m) and we believe DMHL could secure at least 30% of its current bids, given its strong track record in topside module fabrication. At net profit level, we forecast narrower losses in CY18F of S$3.5m, largely as we are still cautious about its 4Q18F contract pipeline; but believe DMHL could return to positive net profit in CY19-20F (S$5.8m-S$8.1m) due to operating leverage.

Book scrubbed clean DMHL’s book value stood at c.S$100m at end-CY17, after the impairment exercises implemented in CY15-17 (S$38m) and clearing of S$50m bonds in CY16. We see little risk of impairment ahead.

SOURCE: COMPANY DATA, CGS-CIMB RESEARCH FORECASTS

Financial Summary Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Revenue (S$m) 204.0 31.4 100.0 150.0 160.0

Operating EBITDA (S$m) 13.00 (44.22) 4.28 13.44 15.49

Net Profit (S$m) (18.99) (57.13) (3.51) 5.81 8.09

Normalised EPS (S$) 0.010 (0.053) (0.003) 0.006 0.008

Normalised EPS Growth 312% (647%) (93%) 39%

FD Normalised P/E (x) 13.52 NA NA 22.89 16.44

DPS (S$) - - - - -

Dividend Yield 0% 0% 0% 0% 0%

EV/EBITDA (x) 7.86 NA 20.32 5.80 4.36

P/FCFE (x) 4.73 NA 7.96 14.72 12.81

Net Gearing (20.3%) (28.8%) (46.4%) (52.4%) (57.7%)

P/BV (x) 0.83 1.29 1.33 1.26 1.17

ROE 5.8% (40.7%) (3.4%) 5.6% 7.4%

% Change In Normalised EPS Estimates

Normalised EPS/consensus EPS (x)

Singapore

ADD Consensus ratings*: Buy 0 Hold 0 Sell 0

Current price: S$0.13

Target price: S$0.18

Previous target: N/A

Up/downside: 36.3%

CGS-CIMB / Consensus: na

Reuters: DMHL.SI

Bloomberg: DMHL SP

Market cap: US$100.9m

S$133.0m

Average daily turnover: US$0.17m

S$0.22m

Current shares o/s: 1,023m

Free float: 34.2% *Source: Bloomberg

Key changes in this note

N/A

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -10.4 6.6 -29

Relative (%) -10.2 2.8 -40.2

Major shareholders % held Tze Jong Lim 40.8 Keppel Corp Ltd 24.4 Dimensional Fund Advisors 0.6

Analyst(s)

Cezzane SEE

T (65) 6210 8699 E [email protected]

LIM Siew Khee T (65) 6210 8664 E [email protected]

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Price Close Relative to FSSTI (RHS)

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Offshore & Marine│Singapore

Dyna-Mac Holdings Ltd│March 21, 2018

Safe small-cap proxy for coming FPSO upswing Key investment highlights

FPSO back in the upcycle

In its 1QCY17 executive summary, Energy Maritime Associates (EMA) forecasted c.50 FPSO awards in between 2017-21F in its mid-case scenario, where oil prices trade in the US$50-70/bbl range (refer to Figure 1). It expected eight FPSO awards in 2017 (seven were awarded), followed by 10-11 FPSO awards annually from 2018F to 2021F This follows very few FPSOs awarded in 2015-16 (3-4 FPSO awards p.a.). We look to Floating Production Storage Offloading (FPSO) players’ outlook, given that they are the main clientele for DMHL’s largest revenue generator – its module business. SBM Offshore (SBMO) and Modec (6269 JP, Not Rated) have historically been DMHL’s key customers. SBM won two of the seven FPSO contracts awarded in 2017 (Liza and Johan Castberg projects); and this resulted in DMHL winning a topside module fabrication contract for the Liza project in Nov 2017. In SBMO’s 4Q17 presentation, it forecasted a base case of seven FPSO awards and a bull case of nine FPSO awards, annually, in CY18-19F (Figure 2), close to EMA’s base-case and bear-case outlook. Generally, we believe a pick-up in FPSO contracts bodes well for DMHL, as well as its clients.

Figure 1: EMA’s outlook (as at 1Q17)

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

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Figure 2: SBMO’s outlook for total FPSO awards (as at 4Q17)

SOURCES: CGS-CIMB RESEARCH, SBMO’S 4Q17 PRESENTATION SLIDES

Strong fabrication heritage

DMHL undertook complete module fabrication business in 1999 for the first time as a turnkey sub-contractor to Keppel Corp (KEP SP, Add, TP: S$10.00) for the fabrication, installation and pre-commissioning of topside modules for the FPSO Espadarte, owned by SBMO. Since 1999, DMHL has delivered c.279 topside modules, 27 skids and 49 pipe-racks. DMHL benefits from solid, longstanding relationships, a formidable track record and a strong market position in the upcoming contracting cycle, in our view.

Figure 3: Dyna-Mac’s historical customers and relationship commencement

CGS-CIMB RESEARCH, DMHL PROSPECTUS; COMPANY REPORTS

Strategic relationship with Keppel Corp

Keppel Corp (KEP) is a substantial shareholder in DMHL with a 24.4% stake currently. This relationship was forged during DMHL’s listing in 2011 as the company viewed KEP as a strong cornerstone shareholder that could enable DMHL to: i) secure more projects in Singapore and overseas, and ii) enable DMHL to tap into KEP’s wider network and affiliated yard facilities in different parts of the world.

Historically, we note that DMHL often wins topside contracts which are KEP’s conversion jobs, and we suspect, besides the collaboration, this is because its main facilities along Gul Road are situated close to Keppel Shipyard’s yard.

Although there is no guarantee that contracts won by KEP will also be won by DMHL, given the historical track record, we believe there could be a strong possibility of this happening. CGS-CIMB forecasts at least S$2.0bn-2.5bn worth of production contracts for KEP in the next two years.

In recovery mode, kickstarts CY18F with order book of S$90m

DMHL had a limited order book of S$13m in FY16 as there were hardly any FPSO contracts awarded globally that year. However, in CY17 it won S$101m worth of contracts for the Liza project from SBMO and from two other customers (Figure 5); that took its end-2017 order backlog to S$90m (Figure 6). This will fuel CY18F revenue, in our view.

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SBM Offshore Awards Non-SBM FPSO Awards

Base Case Awards Total FPSO Market Bull Case Awards Total FPSO Market

Customer Types of Projects Commencement

SBMO Module Business and Ad Hoc Projects 1997

Keppel Shipyard Module Business 1999

Modec Module Business 2006

BW Pioneer Ltd Module Business 2009

Bumi Armada Module Business 2011

Daewoo Shipbuilding and Marine

Engineering (DSME)

Module Business 2014

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According to news articles, ExxonMobil (XOM US, Not Rated) has already submitted an application for an environmental permit to develop the second phase of the Liza project, which we expect to include a larger FPSO with a production capacity of 220,000 barrels of oil per day (vs. Phase 1 which had 120,000 barrels of oil per day). DMHL is the incumbent fabricator for Liza Phase-1, hence we believe its chances of winning a portion of Phase 2 are high. Given that the FPSO may potentially be larger in size, we believe the contract could also be larger in value.

We understand that there are at least S$500m worth of projects currently up for bid worldwide, including the Liza Phase 2 contract.

Figure 4: DMHL’s contract wins in CY17


Figure 5: DMHL’s historical order book


On better financial footing; in net cash position at end-CY17

DMHL embarked on rationalisation exercises in CY15-17 due to the downturn in the oil and gas segment. It assessed its trade receivables, goodwill and yard investments and undertook relevant impairments with the largest being in CY16 to the tune of S$28.8m. It also undertook the early redemption of its S$50m bond in CY15 (before its due date in Aug 2016) to re-jig its capital structure. Management has guided that its restructuring activities are completed (as of end-CY17), and as such, it is just awaiting the return of contracts, which has started to trickle in CY17. DMHL is one of the few oil and gas service providers that are currently in a net cash position. As at end-CY17 it stood at a net cash position of S$30.3m, which translates into net cash per share of 3.0 Scts (23.2% of current share price). We note that DMHL has earmarked some assets for sale (S$32m). The successful sale of these assets would lift its cash position further, in our view.

Awards dateAmount

(S$)Duration/Completion Client/Contract Description Field

8-Nov-17 1Q18F- early 4Q18F SBM Offshore -Fabrication of topside modules for the Floating, Production, Storage and

Offloading

vessel.

Liza Field, Offshore Guyana

19-Jun-17 3Q18F/2Q18F i) Cameron Solutions : fabrication of a MEG Reclamation Unit for the

Leviathan Production Platform Project.

ii) Papua New Guinea :Fabrication of a skid packages

i) Leviathan Field, off coast of

Israel

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Figure 6: DMHL’s selected historical key balance sheet financials


Dividends ahead?

DMHL paid dividends annually after its listing in Mar 2011 but halted payments in CY15-16 when it started to report net losses. Management has not committed to any dividends from hereon but should the company return to net profits and if it maintains its net cash position, we would not be surprised if DMHL resumes dividend payments. Historically, dividend payout was 62.0-82.4% of net profit.

Figure 7: DMHL’s historical dividend payout ratio and dividend per share (DPS)


Financials

Narrower net losses in CY18F

We project CY18/19/20F revenue of S$100m/150m/160m. Around 90% of CY18F revenue is secured (end-CY17 order backlog was S$90m) and we have built in c.S$10m of additional wins, which we believe is achievable given that DMHL’s all-time low contract win was S$13m in CY16. Management has guided for contract bids of at least c.S$500m currently in the market and given DMHL’s strong heritage in the topside module fabrication space, we believe it would secure at least 30% of these bids. DMHL now guides for lower gross margins (GPM) of 19-20% in CY18-20F (vs. 23-30% previously) as the sector is still in recovery mode and customers are still cost conscious.

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At net profit level, we forecast narrower losses in CY18F of S$3.5m. We have opted to be cautious on CY18F net profit despite our expectation that DMHL will report net profit for 9MCY18F (work on CY17 order book started in 1QCY18F and is expected to be completed by early 4QCY18F); as new contracts could only appear towards the latter part of the year, resulting in low yard utilisation for 4QCY18F. We believe DMHL would return to positive net profit of S$5.8m in CY19F, followed by S$8.1m in CY20F, due to operating leverage.

Figure 8: DMHL’s revenue, based on our estimates Figure 9: DMHL’s gross margin (GPM), based on our estimates

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Figure 10: DMHL’s reported net profit, core net profit and revenue, based on our estimates


Improved cash flow generation

DMHL’s operating cash flow generation is largely healthy, in our view (excluding CY14 which was negative due to a late billing cycle, while in CY17 it was hit by low orders executed), due to DMHL’s attractive working capital terms where depending on the size/tenure of the project, DMHL receives a downpayment of 10-15% on contract awards and thereafter payments are received according to milestones met. Management has also guided that it is unlikely to invest in further yard capacity in the near-term; opting instead to rely on collaborations and leasing yard space from external sources (which we believe is ample at the moment) when the need arises.

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Figure 11: DMHL’s historical and forecasted cash flows, based on our estimates


Figure 12: DMHL’s milestone payment policies

SOURCES: CGS-CIMB RESEARCH, DMHL PROSPECTUS, COMPANY REPORTS

Stronger balance sheet With twin benefits of improved operational cash generation and low capex, we believe DMHL can stay in a net cash position for CY18-19F. Moreover, it has also earmarked some assets for sale (S$32m) which, if sold, will enhance its cash pile, in our view. We project DMHL’s net cash to edge closer to c.S$60m in CY18F, after it sells two-thirds (S$21m) of its assets held for sale, and for CY18/19/20F net cash per share to improve to 4.6/5.5/6.5Scts (vs. 2.9Scts in CY17).

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Operating cashflow Capital Expenditure Free cashflow

Short term projects

( approx. 8 months)

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(approx. 12 months)

-10% upon signing of contract

-15% upon cutting of first steel

-15% upon substantial completion of primary steel

-15% upon commencement of piping works

-15% upon substantial completion of piping installation

-10% upon commencement of electrical and

installation

-10% upon substantial completion of electrical and

installation

-5% upon full completion of module

-2.5% upon load out

-2.5% upon completion of final documentation

-15% upon signing of contract

-75% divided into equal monthly progress claims

-7.5% when the module is ready for load out

-2.5% upon completion of final documentation

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Figure 13: DMHL’s historical and forecast cash balance, debt and net cash/(debt) per share, based on our estimates


Valuation and recommendation

Given DMHL’s close strategic relationship with Keppel Corp (KEP), both their share prices are highly correlated (RSI of 89.7%). In terms of valuations, we note that in the early days, DMHL’s P/BV was at a premium over KEP’s P/BV; but that has narrowed in recent years.

DMHL is trading at c.46% above its all-time low share price of S$0.09 in Aug 2016, which could appear lofty at first glance, but we argue that the low was hit when the small-cap oil and gas segment was first besieged by the failure of Swiber (Delisted). Following this, DMHL’s share price has traded within the S$0.11-0.185 range (since Sep 2016 to YTD). We believe small/mid cap stocks with healthy balance sheets (net cash/minimal net gearing) may be accorded a premium to peers in a sector upturn, hence we are slightly more bullish on its potential share price recovery prospects.

We initiate coverage on DMHL with an Add call. Our TP is based on 1.8x CY18F P/BV, which is at a 30% discount to the book value ascribed to Keppel Corp of 2.5x given DMHL’s small-cap status. The PBV ascribed is also close to DMHL’s long-term CY12-17 average mean P/BV of 1.8x.

Figure 14: DMHL’s and Keppel Corp’s (KEP) historical share prices

SOURCES: CGS-CIMB RESEARCH, BLOOMBERG

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Figure 15: DMHL’s P/BV trading band (x)

SOURCES: CGS-CIMB RESEARCH, BLOOMBERG, COMPANY REPORTS

SWOT analysis

Figure 16: Strengths, weaknesses, opportunities, threats analysis


Key risks

Lack of contract wins: DMHL’s earnings recovery is significantly linked to its ability to win contracts. Assuming contract wins fall short below S$120m, there is a potential that losses will continue. Having said that, survivability is not a key concern for us as we believe DMHL’s balance sheet is healthy. Timing then becomes the most crucial element, in our view.

Lower crude oil price: DMHL’s contract prospects are largely contingent on the award of FPSO contracts which can only increase in a better crude oil price environment.

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Source!$e$79:$e$153

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+0.5 SD: 2.2x

+1 SD: 2.6x

Avg (12-17): 1.8x

-1 SD: 0.9x

Strengths Weaknesses

i) Long track record of building topside modules, ;

ii) Direct relationship with FPSO/FSO players; hence not entirely

reliant on yard conversion players;

iii) Experienced management. Mr Desmond Lim (founder) has

steered the company since 1990. Senior management team has

been with the company since listing in 2011;

iv) Strong balance sheet; currently in net cash position.

i) Heavy concentration of work from SBM Offshore and Modec;

ii) Limited diversified and recurrent revenue streams from other parts of

the oil and gas industry;

iii) Main yard only in Singapore.

Opportunities Threats

i) FPSO/FSO contracts awards forecasted to be on an uptrend

given crude oil prices are higher;

ii) The healthy balance sheet avails it to merger & acquisition

opportunities.

i) High level of competition - ample number of competing oil and gas

yards (in China/ Malaysia/Middle East/ Batam) that have faced a

drought of work in previous years and are willing to be cost competitive

to win work.

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Figure 17: Regional peers comparison

NOTE: AS OF 21 MAR 2018

SOURCES: CGS-CIMB, COMPANY REPORTS, BLOOMBERG

Bbg Price

Target

Price

Market

Cap 2-year EPS

Recurring

ROE (%)

Dividend

Yield (%)

Company Ticker Recom. (lcl curr) (lcl curr) (US$ CY18F CY19F CY20F CAGR (%) CY18F CY19F CY18F CY18F

Keppel Corporation KEP SP Add 7.74 10.00 10,638 14.3 14.3 11.3 47.2% 1.18 1.13 8.3% 3.2%

Sembcorp Marine SMM SP Add 2.09 3.01 3,311 72.0 38.9 25.1 na 1.74 1.70 2.4% 0.6%

Singapore offshore - big cap simple average 43.2 26.6 18.2 47.2% 1.46 1.41 5.4% 1.9%

COSCO Shipping International S COS SP NR 0.50 na 849 na na na na 5.00 na 2.4% 0.0%

Yangzijiang Shipbuilding YZJSGD SP Hold 1.30 1.51 3,915 9.3 9.1 9.0 -1.9% 0.87 0.81 9.5% 3.4%

Chinese Shipbuilder simple average 9.3 9.1 9.0 -1.9% 2.93 0.81 5.9% 1.7%

SATS Ltd SATS SP Hold 5.15 5.17 4,362 22.6 20.3 na 10.1% 3.19 2.97 14.5% 3.2%

Sembcorp Industries SCI SP Add 3.07 4.13 4,157 14.3 12.4 10.4 42.3% 0.76 0.73 5.4% 2.6%

ST Engineering STE SP Add 3.50 3.80 8,275 19.6 18.8 17.8 8.8% 4.70 4.46 24.3% 4.4%

SIA Engineering SIE SP Reduce 3.21 3.13 2,724 24.1 23.5 na 3.5% 2.31 2.29 9.6% 3.7%

Industrial conglomerate simple average 20.2 18.7 14.1 16.2% 2.74 2.61 13.4% 3.5%

Vard Holdings Ltd VARD SP NR 0.25 na 224 na na na na 0.84 na -3.7% na

Singapore-listed OSV builder simple average na na na na 0.84 na -3.7% na

CSE Global CSE SP Hold 0.41 0.39 159 13.9 12.4 11.9 na 1.19 1.16 8.6% 6.2%

Ezion Holdings EZI SP Reduce 0.20 0.13 310 27.9 20.1 na 294.1% 0.24 0.23 0.9% 0.0%

Mermaid Maritime MMT SP Hold 0.15 0.16 164 49.2 43.0 37.5 10.1% 0.47 0.47 1.0% 0.0%

MTQ Corp Ltd MTQ SP NR 0.29 na 38 na na na na na na na na

Pacc Offshore Services Holding POSH SP NR 0.38 na 523 na na na -66.8% 1.20 1.25 -4.8% na

Pacific Radiance PACRA SP Reduce 0.10 0.07 56 na na na na 0.25 0.26 -9.6% 0.0%

Vallianz Holdings Limited VALZ SP Add 0.01 0.07 163 1.4 na na na 0.13 na 9.4% 5.1%

Dyna-Mac Holdings Ltd DMHL SP Add 0.13 0.18 101 na 22.9 16.4 na 1.33 1.26 -3.4% 0.0%

Singapore OSV owner simple average 23.1 24.6 21.9 79.2% 0.69 0.77 0.3% 1.9%

Bumi Armada BAB MK Hold 0.85 0.85 1,273 8.8 7.7 8.6 45.3% 0.82 0.74 9.8% 0.0%

Sapura Energy Bhd SAKP MK Add 0.52 1.42 788 na na na na 0.34 0.35 -2.6% 1.9%

UMW Oil & Gas UMWOG MK Hold 0.31 0.31 639 96.7 120.4 68.9 na 0.78 0.78 0.8% 0.0%

Alam Maritim Resources Bhd AMRB MK NR 0.14 na 33 na na na -51.8% 0.23 0.28 na 0.0%

Coastal Contracts Bhd COCO MK NR 1.15 na 155 14.4 na na -27.5% 0.33 na na 1.5%

Dialog Group BHD DLG MK NR 2.84 na 4,082 35.1 30.7 na 13.0% 4.54 4.16 13.6% 1.1%

Malaysia Marine and Heavy Engi MMHE MK NR 0.76 na 310 38.0 26.2 22.4 16.4% 0.47 0.46 1.0% 1.4%

Petronas Dagangan Bhd PETD MK NR 24.96 na 6,322 24.4 23.6 22.1 -17.4% 4.11 3.93 16.8% 3.1%

Uzma Bhd UZMA MK NR 1.51 na 123 10.4 8.6 na 36.9% 0.93 0.73 8.6% 0.0%

Wah Seong Corp Bhd WSC MK NR 1.59 na 313 11.0 11.4 9.6 -2.2% 1.28 1.14 11.6% 1.4%

Malaysia offshore simple average 29.8 32.6 26.3 1.6% 1.38 1.40 7.5% 1.0%

Logindo Samudramakmur Tbk PT LEAD IJ NR 166.0 na 49 na na na na na na na na

Wintermar Offshore Marine WINS IJ Hold 340.0 210.0 105 na na na na na na na na

Indonesia offshore simple average na na na na na na na na

Average (All simple) 26.7 26.0 21.2 21.2% 1.37 1.43 6.1% 1.9%

P/BV (x)P/E (x)

11



Appendix

Background

Dyna-Mac Holdings Ltd (DMHL) was incorporated in Singapore on 19 Jun 2003 and listed on the mainboard of the Singapore Exchange on Mar 2011. The company provides detailed engineering, procurement and construction services to offshore oil and gas, marine construction and other industries. Its main yards are in Singapore but it has collaborations with various yards in Malaysia, the Philippines, China and Brazil.

Figure 18: DMHL corporate structure (as of 21 Mar)

SOURCES: CGS-CIMB RESEARCH, DMHL WEBSITE

Business segments and major customers

DMHL’s customers include the world’s largest owners of FPSO and FSO's including SBMO, Modec, BWO and Bumi Armada (BAB MK, Hold, TP: RM0.85) and multinational oil and gas companies like KEP, VWS Westgarth (Unlisted), VME Process (Unlisted), Emerson (EMR US, Not Rated), Siemens (SIE GR, Not Rated) and Subsea7 (SUBC NO, Not Rated). SBM, Modec and BAB have been DMHL’s key customers historically.

It has two business segments (refer to Figure 19).

The Module Business involves DMHL’s main work for the topside modules of a FPSO/FSO and accounted for the majority of its DMHL’s historical revenue and gross profits (refer Figures 20 and 21). Topside modules are specialised process and control equipment (i.e. separators, heat exchangers, coolers, pumps, electrical equipment, process piping, control valves and control panels) fitted or integrated on steel structural frames to be installed on FPSOs, FSOs or semisubmersibles to carry out specific functions.

The Ad Hoc Projects involve detailed engineering and fabrication services for specialised structures and piping for semi-submersibles and refineries, as well as petrochemical and pharmaceutical plants.

12



Figure 19: Company background


Figure 20: DMHL’s historical revenue by business segment Figure 21: DMHL’s historical gross profit by business segment

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Title:

Source:


58% 76% 64% 97% 98% 94% 96%

-10.0%

10.0%

30.0%

50.0%

70.0%

90.0%

110.0%

2011* 2012 2013 2014 2015 2016 2017

Module (Topside) Business Ad Hoc Project segment

58% 65% 57% 98% 102% 99% 100%

-10.0%

10.0%

30.0%

50.0%

70.0%

90.0%

110.0%

2011* 2012 2013 2014 2015 2016 2017

Module (Topside) Business Ad Hoc Project segment

13



Yards

Located at 31, 33, 45 and 59 Gul Road, DMHL’s yard facilities are large, modern and well-equipped to fabricate heavy-duty topside modules and specialised structures, in our view.

Figure 22: Aerial view of DMHL’s yard


Figure 23: DMHL’s yard layout detail at Gul Road, Singapore


Senior management

DMHL’s management have at least 17 years of track record in the topside module business. Mr. Desmond Lim founded the company in 1990, while Mr. John Varghese (Senior Chief Corporate and Technical Officer) has more than 40 years of working experience in engineering, procurement and construction for the downstream business.

Total Land Area 110,300 sqm

Fabrication & Assembly Area (Open) 53,968 sqm

Covered Workshop 20,825 sqm

Covered Air-conditioned Store 294 sqm

Covered/Open Storage Area 13,964 sqm

Office & Others 21,249 sqm

Ground Bearing Force 50 mt/sqm

Water Depth 7.8 m (at datum)

Wharf Length 300m

Max. Load-out Capacity 22,000 mt

Yard Layout Details

14



Figure 24: Senior management


Collaboration with Keppel Corp

DMHL’s relationship with Keppel Corp (KEP) is largely represented by a collaboration agreement signed in 2010.

The agreement requires both parties to promote each other’s respective respective core businesses - the module business for DMHL and the repair, conversion and upgrading of vessels for KEP.

The collaboration agreement will cease to exist should KEP’s shareholding fall below 20%, and KEP also has first rights of refusal should major shareholder, Desmond Lim, decide to pare down his stake to below 30%.

We note that KEP’s stake was initially 29% upon DMHL’s listing but this was pared down to the current stake of 24.4% after a private placement that was completed in CY12.

Name Title Description

Mr Lim Tze Jong, Desmond Chairman and Chief Executive

Officer

Founded the company in 1990.

Mr Varghese John Senior Chief Corporate and

Technical Officer

More than 40 years of working experience in project management for engineering,

procurement and construction contracts involving refineries, chemical plants, oil & gas projects and in the

field of quality assurance

Ms Tiong Sai Lan, Joyce Chief Financial Officer A member of the Institute of Singapore Chartered Accountants since 1999, Ms Tiong is also a fellow

member of the Association of Chartered Certified Accountants since 2002.

Mr Lim Tjew Yok Chief Operating Officer Responsible for overseeing the yard's operations and facilities management, development and

maintenance (including project management). He reports to the Executive Chairman and CEO. Obtained

his Diploma in Mechanical Engineering from the Singapore Polytechnic in 1979.

Mr Teo Boon Hwee, Simon Chief Marketing Officer Responsible for overseeing commercial business segment, including estimating/tender & contract in

FPSOs and ad-hoc projects (other than those covered under business development, overseas project for

commercial in China and liaison with the Economic Development Board (EDB)/ JTC Corporation (JTC)/

Maritime and Port Authority (MPAs). More than 27 years of experience in the fields of marketing,

sourcing and procurement.

Ms Chong Swee Lee Vice-President (Human

Resource, Administration &

Group Payroll)

Obtained her Bachelor of Business Administration degree from the National University of Singapore in

1991. Is a Professional Member of Singapore Human Resources Institute.

Mr Chin Woon Kwong, Ian Vice-President (Commercial) Responsible for overseeing the commercial functions in the areas of estimation, tender, customer service

support and contracts. He reports to the Chief Marketing Officer. He joined the Group in Jul 2014. Has

over 25 years of experience in quality engineering, turbo-machinery equipment (gas turbine engines)

maintenance-repair-overhaul (MRO) operations, component manufacturing, conversion and repair of

mobile offshore drilling units (MODU), environmental engineering and shipbuilding.

15



BY THE NUMBERS

SOURCE: CGS-CIMB RESEARCH, COMPANY DATA

-50.0%

-34.0%

-18.0%

-2.0%

14.0%

30.0%

0.30

0.80

1.30

1.80

2.30

2.80

Jan-14A Jan-15A Jan-16A Jan-17A Jan-18F Jan-19F

P/BV vs ROE

Rolling P/BV (x) (lhs) ROE (rhs)

-2,400%

-650%

1,100%

2,850%

4,600%

6,350%

8,100%

9,850%

11,600%

3

23

43

63

83

103

123

143

163

Jan-14A Jan-15A Jan-16A Jan-17A Jan-18F Jan-19F

12-mth Fwd FD Normalised P/E vs FD Normalised EPS Growth

12-mth Fwd Rolling FD Normalised P/E (x) (lhs)

Diluted Normalised EPS Growth (rhs)

Profit & Loss

(S$m) Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Total Net Revenues 204.0 31.4 100.0 150.0 160.0

Gross Profit 45.0 (28.2) 20.7 30.5 33.1

Operating EBITDA 13.0 (44.2) 4.3 13.4 15.5

Depreciation And Amortisation (12.8) (10.1) (7.3) (6.4) (5.7)

Operating EBIT 0.2 (54.3) (3.0) 7.0 9.8

Financial Income/(Expense) (3.0) (0.3) 0.0 0.0 0.0

Pretax Income/(Loss) from Assoc. 0.0 0.0 0.0 0.0 0.0

Non-Operating Income/(Expense) 13.2 (0.5) 0.0 0.0 0.0

Profit Before Tax (pre-EI) 10.4 (55.1) (3.0) 7.0 9.8

Exceptional Items (28.8) (3.4) 0.0 0.0 0.0

Pre-tax Profit (18.4) (58.5) (3.0) 7.0 9.8

Taxation (0.7) 0.6 (0.5) (1.2) (1.7)

Exceptional Income - post-tax

Profit After Tax (19.1) (57.9) (3.5) 5.8 8.1

Minority Interests 0.1 0.8 0.0 0.0 0.0

Preferred Dividends

FX Gain/(Loss) - post tax

Other Adjustments - post-tax

Preference Dividends (Australia)

Net Profit (19.0) (57.1) (3.5) 5.8 8.1

Normalised Net Profit 9.7 (54.6) (3.5) 5.8 8.1

Fully Diluted Normalised Profit 9.8 (53.8) (3.5) 5.8 8.1

Cash Flow


EBITDA 13.00 (44.22) 4.28 13.44 15.49

Cash Flow from Invt. & Assoc.

Change In Working Capital 56.16 67.96 (7.27) (11.93) (1.45)

(Incr)/Decr in Total Provisions

Other Non-Cash (Income)/Expense

Other Operating Cashflow (35.60) (23.83) 0.80 (0.00) 0.00

Net Interest (Paid)/Received (2.99) (0.32) 0.00 0.00 0.00

Tax Paid (2.50) (1.55) (0.51) (1.19) (1.66)

Cashflow From Operations 28.07 (1.97) (2.70) 0.33 12.38

Capex (1.59) (2.84) (2.00) (2.00) (2.00)

Disposals Of FAs/subsidiaries

Acq. Of Subsidiaries/investments

Other Investing Cashflow 1.64 0.15 21.42 10.71 0.00

Cash Flow From Investing 0.04 (2.69) 19.42 8.71 (2.00)

Debt Raised/(repaid) 0.00 (28.30) 0.00 0.00 0.00

Proceeds From Issue Of Shares 0.00 0.00 0.00 0.00 0.00

Shares Repurchased

Dividends Paid 0.00 0.00 0.00 0.00 0.00

Preferred Dividends

Other Financing Cashflow (48.54) (0.37) 0.00 0.00 0.00

Cash Flow From Financing (48.54) (28.67) 0.00 0.00 0.00

Total Cash Generated (20.42) (33.32) 16.71 9.03 10.38

Free Cashflow To Equity 28.12 (32.95) 16.71 9.03 10.38

Free Cashflow To Firm 31.11 (4.33) 16.71 9.03 10.38

16



BY THE NUMBERS… cont’d

SOURCE: CGS-CIMB RESEARCH, COMPANY DATA

Balance Sheet


Total Cash And Equivalents 69.5 37.1 53.8 62.8 73.2

Total Debtors 94.2 27.6 56.5 100.0 106.6

Inventories 3.7 2.1 2.2 4.0 4.2

Total Other Current Assets 4.6 32.8 11.4 0.7 0.7

Total Current Assets 172.0 99.6 124.0 167.6 184.8

Fixed Assets 72.1 45.0 39.7 35.3 31.5

Total Investments 13.6 0.0 0.0 0.0 0.0

Intangible Assets 0.0 0.0 0.0 0.0 0.0

Total Other Non-Current Assets 0.4 0.3 0.3 0.3 0.3

Total Non-current Assets 86.1 45.4 40.0 35.5 31.8

Short-term Debt 35.0 6.7 6.7 6.7 6.7

Current Portion of Long-Term Debt 1.3 0.3 0.3 0.3 0.3

Total Creditors 57.4 33.7 55.5 89.5 94.9

Other Current Liabilities

Total Current Liabilities 93.7 40.7 62.5 96.5 101.9

Total Long-term Debt 0.1 0.1 0.1 0.1 0.1

Hybrid Debt - Debt Component 0.0 0.0 0.0 0.0 0.0

Total Other Non-Current Liabilities 0.0 0.0 0.7 0.0 0.0

Total Non-current Liabilities 0.1 0.1 0.8 0.1 0.1

Total Provisions 1.2 0.0 0.0 0.0 0.0

Total Liabilities 94.9 40.8 63.3 96.6 102.0

Shareholders' Equity 161.0 103.5 100.0 105.8 113.9

Minority Interests 2.2 0.7 0.7 0.7 0.7

Total Equity 163.2 104.2 100.7 106.5 114.6

Key Ratios

Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Revenue Growth (24%) (85%) 219% 50% 7%

Operating EBITDA Growth (32%) (440%) N/A 214% 15%

Operating EBITDA Margin 6% (141%) 4% 9% 10%

Net Cash Per Share (S$) 0.032 0.029 0.046 0.055 0.065

BVPS (S$) 0.16 0.10 0.10 0.10 0.11

Gross Interest Cover 0.1 (169.1) N/A N/A N/A

Effective Tax Rate 0.0% 0.0% 0.0% 17.0% 17.0%

Net Dividend Payout Ratio NA NA NA NA NA

Accounts Receivables Days 229.9 708.1 153.5 190.5 236.3

Inventory Days 14.78 17.77 9.95 9.47 11.82

Accounts Payables Days 187.1 279.2 205.4 221.5 266.0

ROIC (%) 0.1% (46.1%) (4.0%) 12.8% 19.2%

ROCE (%) 0.1% (34.8%) (2.7%) 6.3% 8.3%

Return On Average Assets 4.0% (26.9%) (2.3%) 3.2% 3.9%

Key Drivers

Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Outstanding Orderbook (S$m) 90 140 140 130 -

Order Book Wins (S$m) 100.9 150.0 150.0 150.0 -

Order Book Depletion (S$m) N/A N/A N/A N/A N/A

Average Day Rate Per Ship (US$) N/A N/A N/A N/A N/A

No. Of Ships (unit) N/A N/A N/A N/A N/A

Average Utilisation Rate (%) N/A N/A N/A N/A N/A

Oil Price (US$/bbl) N/A N/A N/A N/A N/A

Energy Production Volume (mmboe) N/A N/A N/A N/A N/A

Average Day Rate - Drilling Rigs (US$) N/A N/A N/A N/A N/A

Average Util. Rate - Drilling Rigs (%) N/A N/A N/A N/A N/A

Average Day Rate - FPUs (US$) N/A N/A N/A N/A N/A

Average Util. Rate - FPUs (%) N/A N/A N/A N/A N/A

Total Oil Storage Capacity (000 cbm) N/A N/A N/A N/A N/A

Equity Share Of Oil Storage Capacity (000 cbm) N/A N/A N/A N/A N/A

Assumed Util. Rate Of Oil Storage Capacity (%) N/A N/A N/A N/A N/A

17



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18



Country CGS-CIMB Entity Regulated by

Hong Kong CGS-CIMB Securities (Hong Kong) Limited Securities and Futures Commission Hong Kong

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Other Significant Financial Interests:

(i) As of March 21, 2018 CIMB has a proprietary position in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report:

(a) Dyna-Mac Holdings Ltd

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recipient’s reliance on any recommendation made by CGS-CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA.

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Thailand: This report is issued and distributed by CGS-CIMB Securities (Thailand) Co. Ltd. (“CGS-CIMB Thailand”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CGS-CIMB Thailand has no obligation to update its opinion or the information in this research report.

CGS-CIMB Thailand may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions.

AAV, ADVANC, AMATA, ANAN, AOT, AP, BA, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEAUTY, BEC, BEM, BJC, BH, BIG, BLA, BLAND, BPP, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EA, EGCO, EPG, GFPT, GLOBAL, GLOW, GPSC, GUNKUL, HMPRO, INTUCH, IRPC, ITD, IVL, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LPN, MAJOR, MALEE, MEGA, MINT, MONO, MTLS, PLANB, PSH, PTL, PTG, PTT, PTTEP, PTTGC, QH, RATCH, ROBINS, S, SAWAD, SCB, SCC, SCCC, SIRI, SPALI, SPRC, STEC, STPI, SUPER, TASCO, TCAP, THAI, THANI, THCOM, TISCO, TKN, TMB, TOP, TPIPL, TRUE, TTA, TU, TVO, UNIQ, VGI, WHA, WORK.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CGS-CIMB Thailand does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 – 89 70 - 79 Below 70 or No Survey Result

Description: Excellent Very Good Good N/A

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not relevant persons. Any investment or investment activity to which this material relates is available only to relevant persons and will be engaged in only with relevant persons.

Where this material is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “research” (cannot remove research from here under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent material will not have been prepared in accordance with legal requirements designed to promote the independence of research (cannot remove research from here) and will not subject to any prohibition on dealing ahead of the dissemination of research. Any such non-independent material must be considered as a marketing communication.

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CGS-CIMB Securities (USA) Inc. neither expects to receive nor intends to seek compensation for investment banking services from any of the company mentioned within the next 3 months.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Spitzer Chart for stock being researched ( 2 year data )

Dyna-Mac Holdings Ltd (DMHL SP)

Rating Distribution (%) Investment Banking clients (%)

Add 58.5% 6.4%

Hold 31.7% 2.6%

Reduce 9.0% 0.7%

Distribution of stock ratings and investment banking clients for quarter ended on 31 December 2017

1235 companies under coverage for quarter ended on 31 December 2017

0.060

0.110

0.160

0.210

0.260

0.310

0.360

Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Oct-17

Price Close

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Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2017, Anti-Corruption 2017

AAV – Very Good, n/a, ADVANC – Excellent, Certified, AEONTS – Good, n/a, AMATA – Very Good, n/a, ANAN – Excellent, n/a, AOT – Excellent, Declared, AP – Excellent, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Declared, BCP - Excellent, Certified, BCPG – Very Good, n/a, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, n/a, BEC – Very Good, n/a, , BGRIM – not available, n/a, BH - Good, n/a, BJC – Very Good, Declared, BJCHI – Very Good, Declared, BLA – Very Good, Certified, BPP – Good, n/a, BR - Good, Declared, BTS - Excellent, Certified, CBG – Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, n/a, DEMCO – Excellent, Certified, DIF – not available, n/a, DTAC – Excellent, Certified, EA – Very Good, n/a, ECL – Very Good, Certified, EGCO - Excellent, Certified, EPG – Very Good, n/a, GFPT - Excellent, Declared, GGC – not available, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Excellent, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Certified, ICHI – Excellent, n/a, III – not available, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Very Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Certified, M – Very Good, n/a, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Very Good, Declared, MALEE – Very Good, n/a, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Excellent, Declared, PLAT – Very Good, Certified, PSH – Excellent, Certified, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Very Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI – Very Good, Declared, SPA - Good, n/a, SPALI - Excellent, n/a, SPRC – Excellent, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, n/a, TCAP – Excellent, Certified, THAI – Very Good, n/a, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Excellent, Certified, TICON – Very Good, Declared, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Very Good, Declared, TMB - Excellent, Certified, TNR – Good, n/a, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Excellent, Declared, TTW – Very Good, n/a, TU – Excellent, Declared, TVO – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a.

Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into:

- Companies that have declared their intention to join CAC, and

- Companies certified by CAC

Recommendation Framework

Stock Ratings Definition:

Add The stock’s total return is expected to exceed 10% over the next 12 months.

Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.

Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.

Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.

Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition:

Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.

Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.

Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

#01

Note: CIMB Research is a participant in the SGX StockFacts Research Programme and receives fees from the account maintained by SGX for providing research coverage on the Company.

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