Date: 26 September 2024
Broker Name: Lim & Tan Securities Pte Ltd
Hanwha’s Tender Offer for Dyna-Mac
On September 11, 2024, Hanwha Group, a substantial shareholder of Dyna-Mac, made a tender offer of 60 cents per share for the shares it does not already own in the Mainboard-listed company. Hanwha Group issued a statement on September 25, 2024, explaining the rationale behind its offer price, which is based on a thorough review of factors affecting Dyna-Mac’s business outlook. This review took into consideration growth prospects, order book, geopolitical tensions, macro-economic uncertainties, oil price volatility, and the global shift towards clean energy transition.
Offer Valuation
Hanwha’s offer represents:
- A 21% premium over the undisturbed last transacted price per share on September 10, 2024.
- A price-to-book ratio of 5.7x diluted net asset value per share as of June 30, 2024.
- A price-to-earnings ratio of 13.2x diluted earnings per share for the 12 months ending June 30, 2024.
More information will be provided in the Offer Document, which is set to be dispatched no later than October 2, 2024.
Founding Estate’s Opposition to the Offer
The estate of Dyna-Mac’s late founding shareholder, Desmond Lim Tze Jong, issued a statement on September 23, 2024, expressing opposition to Hanwha’s offer. The estate believes that Hanwha’s offer is not compelling and does not adequately reflect Dyna-Mac’s value and growth potential after its significant transformation following the COVID-19 pandemic. According to the estate, Dyna-Mac is now well-positioned for strong growth in the years ahead, thanks to a robust net order book and new yard facilities.
Growth Potential and Order Book
As of 1HFY2024, Dyna-Mac holds a net order book valued at $681.3 million, with deliveries scheduled through FY2026. The estate of Desmond Lim emphasized the company’s potential for securing further orders, particularly given the addition of new yard facilities. The estate also highlighted that Dyna-Mac has a strong net cash position, potential for dividends, and a positive outlook for profitability in the near future, especially with a strong demand forecast for floating production storage and offloading (FPSOs) vessels.
Shareholder Sentiment
Several brokers, including Lim & Tan Securities, recommend that shareholders wait for the Independent Financial Adviser’s (IFA) recommendation before making any decisions on Hanwha’s offer. With Dyna-Mac’s market capitalization standing at S$794 million and trading at a 10x forward PE (with an ex-cash PE of around 5x), Lim & Tan maintains a target price of S$0.715, which represents at least a 13.4% upside potential. The consensus target price for Dyna-Mac is between S$0.64 and S$0.715.
The founding family and estate, in particular, believe that S$0.60 per share undervalues the company and are advocating for a more compelling offer.
Recommendation
Given the non-final nature of the offer and the strong growth potential of Dyna-Mac, Lim & Tan Securities advises investors to “HOLD” until further guidance is provided by the Independent Financial Adviser and the board of directors.
