20 September 2024 – Singapore
Corporate deals are returning to the Singapore offshore and marine sector on the back of rising energy prices and falling interest rates, and this has lifted prospects for the industry’s stocks.
Two such deals, involving Singapore Exchange-listed companies Dyna-Mac Holdings and Atlantic Navigation, took place in September, at a time when interest in the local stock market is picking up.
Mainboard-listed Dyna-Mac on Sept 11 received a voluntary conditional cash offer from Hanwha Ocean SG Holdings at 60 cents a share.
The offer price by the South Korean-controlled company represents a premium of 581.8 per cent over the lowest closing price of the Singapore company’s share price for the three-year period prior to the offer on Sept 18, and a discount of 2.4 per cent to the highest closing price of the shares during this period.
Under the deal, Hanwha must acquire more than 50 per cent of the total shareholding. At the time of the offer earlier this week, it held 25.36 per cent.
Meanwhile, in another largely unnoticed announcement on Sept 9, Atlantic Navigation said it had sold 20 of its offshore vessels for US$183 million (S$236 million) to MAG Offshore Investment.
Based on their net book value of US$162.4 million as at June 30, the proposed sale of the 20 vessels is expected to result in a gain on disposal of approximately US$20.6 million.
But what was more interesting is the indication that the Catalist-listed company plans to do a significant payout to shareholders from the sale.
The company said net proceeds from the disposal would come up to US$180.8 million, where US$62 million would be distributed to Atlantic Navigation’s shareholders in shares, while another US$58 million will be paid out via a special interim dividend.
In short, shareholders stand to get some US$120 million in total payouts. This works out to almost 30 cents a share.
Developments at both these companies portend potential handsome gains for shareholders.
While Atlantic Navigation shareholders can look to a huge payout possibly in early 2025, in the case of Dyna-Mac, analysts reckon investors should wait as the offer on the table will very likely be improved.
They note that the outlook for Dyna-Mac remains positive due to robust prospects, a high net cash position, potential dividends and higher projected profitability.
“We think that the main aim of the offer is not to delist the company but to have a controlling stake of more than 50 per cent,” wrote analyst Jarick Seet of Maybank Securities.
“As a result, Dyna-Mac may remain listed as the offer is only mandatory if more than 90 per cent of the share float is acquired. The offer is also conditional on Hanwha acquiring more than 50 per cent of the share float. Warrants must also be converted as there is no offer for the warrants.”
Meanwhile, brokers said some situational funds are already buying Dyna-Mac on bets of a higher offer price.
The company surprised the market by reporting higher-than-expected first-half earnings of $38.8 million for the six months ending June 2024. Revenue smashed expectations as well, at $259.7 million. The results translated into a net margin of 15 per cent and a return on assets of 66.4 per cent. The company had $308 million in net cash.
As for Atlantic Navigation, the fact that the company is intending to distribute almost as much as its net asset value of 31.48 cents a share is remarkable, say market insiders.
After selling its tugs, barges, supply vessels and anchor handlers, Atlantic Navigation said it will retain one jack-up barge under a call option agreement with another buyer that expires in February 2025.
“After the proposed disposal, the group will continue to provide ship management services and will be predominantly an asset-light ship manager as opposed to being a shipowner and manager,” the company said in a Singapore Exchange announcement.
The company, which was listed in May 2006 and serves clients largely located in the Middle East, has been profitable, with net income rising 60 per cent over the past five years and delivering a return on equity of about 24 per cent.
Earnings for the first half to June 30 rose 106 per cent to US$21.5 million, on the back of a 22 per cent rise in revenue to US$53.2 million. The stock is trading at a trailing price-to-earnings multiple of 4.4 times, which is a relatively low price compared with its earnings.
The offshore and marine sector has seen a noticeable re-rating in recent months, thanks to higher energy prices and increased offshore engineering support demand.
Many of these companies, which have significant borrowings, are also expected to benefit from falling interest rates.
Marco Polo Marine has been upgraded to a buy with a price target of eight cents, while Kim Heng is seeing record orders, thanks to rising offshore renewable energy infrastructure demand, especially from wind farms.
Meanwhile, Seatrium’s stock has raced up more than 20 per cent over the last two weeks.
Dyna-Mac closed at 63 cents on Sept 20, up 26 per cent since the Hanwha offer, while Atlantic Navigation closed flat at 32.5 cents.
Source: The Straits Times