Date: 24 September 2024
Broker: Lim & Tan Securities

Estate’s Rejection of Hanwha’s Offer

The estate of Dyna-Mac’s founding shareholder, Desmond Lim Tze Jong, has voiced concerns regarding Hanwha Group’s tender offer of 60 cents per share, stating that it does not adequately reflect the company’s long-term intrinsic value. Desmond Lim, who was the executive chairman and CEO of Dyna-Mac, passed away unexpectedly on October 26, 2019, at the age of 61. His estate, which holds the largest share in the company at approximately 27%, has emphasized that Dyna-Mac has undergone significant transformation post-pandemic and is well-positioned for strong growth in the coming years.

Dyna-Mac’s Financial and Market Position

As of the first half of FY2024, which ended June 30, Dyna-Mac reported a robust net order book of S$681.3 million, with deliveries scheduled through FY2026. The estate highlighted that the company is poised to further increase its order book, particularly due to the addition of new yard facilities. Dyna-Mac is positioned in the floating production storage and offloading (FPSO) sector, which is expected to experience substantial growth. This, combined with the company’s high net-cash position, potential dividends, and higher profitability outlook, supports the estate’s claim that the offer price of 60 cents does not reflect the company’s true value.

Estate’s Long-Term Commitment

The estate has reiterated its commitment to continuing the legacy of Dyna-Mac’s founder. It has remained invested through challenging times, including cyclical downturns, energy crises, and the COVID-19 pandemic, without losing faith in the group’s potential. The estate believes that any acquisition offer should align with Dyna-Mac’s true value and growth potential, which they feel has not been recognized in Hanwha’s offer.

Hanwha’s Tender Offer and Market Reactions

Hanwha Group, a Korean-listed conglomerate, made a tender offer of 60 cents per share for all Dyna-Mac shares it does not already own. The offer represents a 21.2% premium to Dyna-Mac’s last-traded price of 49.5 cents on September 10, 2024. Additionally, it offers premiums of 6.2%, 14.1%, 29.3%, and 50% to the one-, three-, six-, and twelve-month volume-weighted average prices (VWAP) of Dyna-Mac shares, respectively.

Despite the offer, analysts from Maybank Securities, OCBC Investment Research (OIR), and Lim & Tan Securities have advised investors to “wait and see.” All three analysts maintain a “buy” recommendation on Dyna-Mac, with target prices ranging from 64 cents to 71.5 cents.

Analyst Valuations

The Edge Singapore’s analyst, Thiveyen Kathirrasan, noted that Hanwha’s offer is “fair,” estimating Dyna-Mac’s intrinsic value at 61 cents per share. On the other hand, Lim & Tan Securities set their target price at 71.5 cents, while the consensus average target price falls between 64 and 71.5 cents. Dyna-Mac currently trades at 9.9x forward price-to-earnings ratio (P/E), with an ex-cash P/E of less than 5x.

Conclusion

Dyna-Mac’s market capitalization stands at approximately S$702 million. While the company has undergone substantial transformation and growth, the estate and analysts agree that Hanwha’s 60-cent offer does not adequately capture the company’s future potential. As a result, investors are advised to await further developments, including the independent financial adviser’s (IFA) recommendation, before making a decision. Lim & Tan Securities maintains a “Hold Tight” recommendation on Dyna-Mac as of September 24, 2024.