Highlights

///EXCLUSIVE FREE VERSION COVERAGE/// - DANCO - Published 18/01/2021

Author: foreverchung   |   Latest post: Mon, 18 Jan 2021, 12:13 AM

 

///EXCLUSIVE FREE VERSION COVERAGE/// - DANCO - Published 18/01/2021

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///EXCLUSIVE FREE EXTENDED VERSION COVERAGE/// - DANCO (5276) - Published 18/01/2021

 

TICKER PRICE DURING REVIEW: RM0.63 per unit share.

 

___ DANCO (5275) - Resilience is the key to growth___


INTRODUCTION

During my initial coverage of DANCOMECH HOLDINGS BERHAD (5276), many of my subscribers have called me out for being particularly biased towards this counter despite it being a small-medium cap counter with not too much of trading volume. So what made me so attracted to this counter that I labelled it as my personal gem? Especially due to its low visibility and always be under the radar of most investors. Read along to find out.
 
WARNING: FOR PUNTER/SHORT TERMER/DAY TRADER, THIS COUNTER MAY NOT BE FOR YOU, YOU MAY MOVE TO OTHER COUNTERS WITH HIGHER VOLUME. FOR THE REST, BEWARE, TONNES OF INFORMATION (~50% OF MY RESEARCH) AHEAD.
 
Being a company that is primarily involved in manufacturing segment for other industries, DANCO started its journey as a middle man, procuring valve, PCE (Precision control equipments), indsutrial pumps and other measuring equipments,  and resell / distribute to local industry or other regional industries. The company mainly involved in supporting the realms palm oil and oleochemicals, oil & gas and petrochemical, and water treatment & sewerage industries.
 
Today, DANCO has evolved into a multi-segment manufacturing company with its recent acquisition of MTL Engineering (2020) - metal fabrication, metal stamping, tool and die making @70% respectively; and also UTC Engineering Sdn Bhd (2021) - electrical engineering services in power distribution, control and automation @55% stake respectively.

 

** UPDATE (21/01/2021): UOB KAY HIAN has INITIATED coverage with a 'BUY' call **

https://www.thestar.com.my/business/business-news/2021/01/21/uob-kay-hian-dancomech039s-earnings-to-grow-at-cagr-of-14


 

Fundamentals

Taking into the consideration of overall DANCO's fundamental analysis, I would rate this company a personal "A" for a good standing in balance sheets, and also its management segment, which a healthy cashflow, lack of debt and good amount of spending for growth. Whilst the details of the overall fundamentals would not be discussed in this version of article, most details I am sure you can find online and study on your own right? After, don't take solely my word for it. That aside, let's look into some interesting subtopics in regards to DANCO's fundamentals.

a(i). Financial Results (Extended)

Looking into the recent financials of the company, the company have been profit making ever since its IPO listing in Bursa, whereas the growth of the revenue and profits have been marginally and also fluctuating throughout the years (mainly based on palm-oil industry and other factors).

However, this scene is set to change in the next few quarters or years with the new ventures into Metal Stamping / Tool & Die moulding and/or manufacturing, with the most recent one being Electrical Engineering. With the company recently announced a record breaking revenue and record breaking profit based on the 3rd Quarter of FY2020.

Financial result wise DANCO has been quite consistent throughout the years with an average T4Q Dividend Yield of 2.73% (Still higher than bank FD, which is a big sigh by the way).

With that being said, the upcoming quarter seems to be a bright spot considering we might see a start of project based on the award of the Jurong's ~RM36.5m contract to Arah Edar (M) Sdn Bhd, DANCO's 55% owned subsidiary. Apart from that, we should also consider the significance of this project. This is the very first large project that DANCO related subsidiary has secured for a long time (if not never), we definitely hope more could come into this foray with the acquisition of MTL and the pending acquisition of UTC.

Source: https://www.theedgemarkets.com/article/dancomech-bags-rm365m-subcontract-singapores-jurong-port

 

Let's look at some calculation for the current earnings, alongside with the 'possible' earnings for DANCO:

Estimated (T4Q) calculations:
 

Current estimation before MTL (2019)
Revenue = 95.47m
PAT = 15.69m
PE = 12.92
EPS = 4.9 cents
Price = RM0.630/share (as off writing)
 
Forward Conservative estimation after MTL (2020)
Revenue = ~33m/quarter; 132m/annum
PAT = ~5m/quarter; 20m/annum
EPS = ~1.565 cents/quarter; ~6.25cents/quarter (rounded down)
 
PE 11 = RM0.685/share (rounded down) ||| 20% discount = RM0.550/share (rounded down)
PE 13 = RM0.813/share (rounded down) ||| 20% discount = RM0.650/share (rounded down)
PE 15 = RM0.935/share (rounded down) ||| 20% discount = RM0.750/share (rounded down)
 
 > The above is a CONVERSATIVE calculation included a 20% premium discount because I saw warrant mother share dilution, kiasi & kiasu & market don't react as wished <
 
Forward Conservative estimation after MTL (2020) + SG Contract (55% stake; estimated margin = 12%; 1SGD =3.02MYR)
Revenue = 132m + (36.272m/55%= 19.95m) = 167.059m
PAT = 20m + (36.272m /12% = 4.353m / 55% = 2.394m) = 22.394m
EPS = 6.99cents
 
PE 11 = RM0.765/share (rounded down) ||| 20% discount = RM0.610/share (rounded down)
PE 13 = RM0.905/share (rounded down) ||| 20% discount = RM0.720/share (rounded down)
PE 15 = RM1.040/share (rounded down) ||| 20% discount = RM0.830/share (rounded down)
 
 > The above is a CONVERSATIVE calculation included a 20% premium discount because I saw warrant mother share dilution, kiasi & kiasu & market don't react as wished <
 

So the rest you can figure out on your own, as I already taken a CONSERVATIVE amount, which is roughly 10-20% discount from the current quarter of ~36m in revenue; ~5.6m in profits. On top of that, I take another 20% discount on the calculation after calculation of share prices. Well, even if you don't believe in PE calculations, I believe a 20% discount TWICE, will get at least your eyeballs turned.

 

a(ii). Acquisitions, Future Prospects & Misc

Talking about acquisitions and future prospects, DANCO is not a laggard as well. With the recent acquisition of MTL (2020) and also UTC (2021), DANCO's growth pathway is set with a direction. DANCO is set to expand to fields that are more advanced and precise, but still somewhat inter-related to the company's origins, which is definitely a consistent and stable approach in terms of investing into the future.
 
MTL Engineering (acquired in 2020)
MTL is primarily involved in the business of producing metal stamping parts, its components; designing and manufacturing of tools and dies, and its moulds. This line of business is relatable to that of the counter parts in the more advanced ends, you guessed it, EMS and Semi-Conductors, with the increasing consumption of electronics worldwide, it is only logical there are more expansions in production capacity. Whereas with the increase of capacity requires expansion of production lines, so MTL may be involved in this. At the moment it is more engaged with consumer electronics sector, in particular, to manufacturers of HVAC products, and also to manufacturers of metal furniture components / entire products.
 
> This is for Free Extended Version only, full version will cover deeper into the contents <

UTC Engineering Sdn Bhd (acquisition in progress)

UTC on the other hand, is mainly involved in the electrical engineering realms, whereby they do electronic and also instrumentation engineering business. Not much was revealed in the UTC acquisition. But based on their website did indicate that their business is highly relatable to DANCO's main businesses i.e. Pump / Valve manufacturing and also metal stamping / die & tool manufacturing. This acquisition in my opinion seems to be supplementary to DANCO, they could add more value into their business clients.
 
> This is for Free Extended Version only, full version will cover deeper into the contents <
 
 
 
 
Additional Notes:
This portion I shall share 1 observation that I have noticed, and somewhat puzzled, although I do have the possible scenarios played out in my head while writing this piece, do let me know what are your opinions on the following:

 

The two brothers in the two directors, Mr. Aik Cho Swing & Mr. Aik Swee Tong, have converted a total of 25,000,000 shares from their holding warrant, DANCO-WA to mother share, with the warrant premium standing at close to 0% (-1.59%) during the time of conversion, 23rd December 2020. With the company's retained earnings standing at RM107,833,000, could shareholders expect a bumper dividend incoming? Or possibly, a bonus issue / share split? Only time will tell.



 

Technicals

Moving towards the technicals, DANCO's graph are also a good study. At the time of writing, DANCO's graph looks to be in a possible consolidation mode, where more and more shares are collected, but with no expectation of sudden influx of huge volumes. On some of the technical indicators used,

(i). SMA - 10 Day SMA is trending downwards to between 50 & 100 SMA, we might see more consolidation before a breakout pattern forms be it upwards or downwards;
(ii). BB - Bollinger Bands indicator shows that DANCO is moving within its region, without much anomalies;
(iii). MACD - MACD indicator at this stage indicates a possible exit point. However, do keep in mind that there were multiple external factors that affected the local bourse i.e. MCO 2.0 / Emergency declaration. Hence, graphs may be skewed, for those who look at TA heavily;
(iv). RSI - RSI indicator shows nothing much as well, with the indicators are neither oversold or overbought, however hovering towards the possible stronger buying pressure than selling;
(v). MCDX - The highly volatile and talked about MCDX SmartMoney indicator seems to indicate that there are some interests in the 'hot money' / 'high liquid' monies flow in and out of DANCO's stock trades.

> Full Technical Analysis not available for free extended version of this article <

Overall, I would rate this as lacklustre at the moment, depending on external factors and also possible any company announcements. Definitely not something a short term investor / day trader would be interested in.


 

Speculations

Now, to the portion where some of my followers are most excited about. It is also the portion where I do not know how they obtained some of their information or where they got it from. This is highly speculative and may or may not have sufficient evidence to back it up.

Please proceed with caution and do take it with a grain of salt. WARNING: VERIFY whenever and however you can.

(i). Linkage with supply to glove companies
Personally, I have not come across concrete details stating that DANCO is actively and solely supplying pumps / valves to the few big companies i.e. TOPGLOV / HARTA / KOSSAN. However, there was mention of it quoted by 'jomnterry' and also some of my followers reported hearing such from the known Stock Education Channel Sharix (Or better known as Harry Teo).
 
The supply of such pumps and valves represents recurring income for DANCO, as maintenance of plant and equipments are done on a regular basis. Same applies for all manufacturing plants / industries, where large scale productions are involved, hence more wear and tear situations.
 
CREDITS: 
1. jomnterry - https://klse.i3investor.com/blogs/jomnterry/2020-10-21-story-h1534761068-DANCOMECH_HOLDINGS_BERHAD_5276_SERVING_TOPGLOV_HARTA_ON_TOP_OF.jsp

2a. Sharix - https://www.facebook.com/sharixht/
2b. Harry Teo - https://www.facebook.com/harryteotybjb
 
(ii).  Diversification into more advanced industries i.e. Semi-conductor related?
Another speculation that is rifed around DANCO's possible diversification into more advanced industry i.e. Semi-conductor related. For this 'speculation', I personally do think that this is plausible, albeit could be a further look into the future. As well as DANCO is positioned in its manufacturing and trading activities, I do think that it does and will take some time before DANCO can have the expertise and also opportunity to venture directly into Semi-conductor related industries.

That said however, DANCO did take up expansion via the acquisition of MTL Group, which is involved in metal stamping and also die/tool production; complemented with the expertise of UTC Engineering Sdn Bhd, which is involved in Electrical Engineering. This acquisition could pave way for DANCO's possible foray into the Semi-conductor related industry. After all, we do have a company that had similar start don't we? A quick screen grab for your curious minds:




 
Conclusion
Again, there is no denying that there IS personal bias towards this company. My followers would be able to tell you how much I enjoy monitoring this company and its prospects especially future acquisitions and diversifications. All companies each have their strengths and weaknesses, for DANCO, one thing I do not appreciate, is that they have not much of shareholder engagement or share related activities. However, this could be good too, less 'frying'. Its smaller market capitalization could also be an issue in gaining exposure for more market opportunities or business opportunities. The industry itself is looking stale-good with the uprising of Palm Oil cycle, I do hope that there are more contribution from water/sewage segment as Oil & Gas seems to be a bit slow at the moment. Perhaps DANCO could learn a thing or two from BOILER in terms of energy / renewables?

As the wind sails with DANCO, this company has the healthy prospects, well managed company, the hunger for growth. These are many of the qualities one look for when scouting a company, let alone investing in one. There has been alot of companies out there that have proven themselves and grow into significance as the time goes by. For DANCO, I am keen to see where this boat is sailing towards, but at the moment, I am enjoying its resilience in a troubled times.
 
Disclaimer:
Do take note that ALL topics discussed, EVERY INFORMATION shared in this piece is purely for sharing, reference and also discussion only. There is NO and NEVER will be any BUY/SELL calls from me or my followers at any given time. As all good investors / traders should know, HOMEWORK / RESEARCH is your safety net, please perform sufficient due diligence before investing / trading. Capital losses are possible. 
 
DANCO Special - As this an Extended free version of a writing, I am obliged and willingly stand out to say that there is personal bias towards this counter / company for its perceived qualities for myself. There are good and there are bad for every company and DANCO is not an exception. I will not and do not condone trading solely based on 'speculations' or any 'gurus' out there. My articles should be only used as a part of your research leading out to your eventual decision. p/s: Feel free to discuss / comment. However, for the full article, it is not available for public at the moment. I will figure out where to go with this. But at the moment, I do not collect any form of payments for any services that I may provide, so be wary of imposters.




Credits
Bursa Malaysia - https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=210549&name=EA_FR_ATTACHMENTS
Bursa Malaysia - https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=101450&name=EA_GA_ATTACHMENTS
Bursa Malaysia - https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=211817&name=EA_FR_ATTACHMENTS
UWC Berhad - https://www.uwcberhad.com.my/about-us/
UTC Engineering Sdn Bhd - https://utcesb.n.my/
Malaysia Stockbiz - https://www.malaysiastock.biz/Corporate-Infomation.aspx?securityCode=5276
KLSE i3 - https://klse.i3investor.com/servlets/stk/5276.jsp

 
 
Labels: DANCO
 
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  2 people like this.
 
sharegain Don't forget about the warrants dilution
18/01/2021 7:04 AM
fusing79 Thanks for sharing knowledge
19/01/2021 10:07 PM
fusing79 Thanks for sharing knowledge
19/01/2021 10:07 PM
Andre Kua Just took a look. Seem like revenue and profit not bad. Haven't look into the balance sheet. Dividend not very good which may explain the lackluster price.

However I'm in steel industry and steel price went up 20% lately. That would hurt profitability in near future.
20/01/2021 7:20 PM
foreverchung Good insights Andre, I would say definitely the steel price could hurt profitability in near future especially for MLT.

I think this the following is something that can be done by the management to reduce risk exposure to this:

1. Since DANCO's subsidiary is involved in pump/valve manufacture and some components can be passed on from MTL, such moves can reduce costs drastically.

2. As a portion of DANCO's business involves import and exporting equipments, USD's strength may or may not play in favor for DANCO.

3. Looking into the balance sheet and inventories, perhaps the management did have a good stock at hand before the steel price rallied.

4. Otherwise, I would expect them to pass on the costs to end customer.

Overall, the influx of liquidity into the economy causes inflation, I would say this effect might be felt throughout other industries as well. This coming quarter would be a good fit to test out DANCO's management for this type of exposure.
20/01/2021 9:55 PM
foreverchung And please do keep that up Andre, good insights are always good for further discussions.
20/01/2021 9:56 PM
Maxigain They supply to glove industry as well. All glove makers except Supermx are Danco’s customers

https://www.theedgemarkets.com/article/dancomech-eyes-double-digit-growth-fy17
18/02/2021 10:52 PM
dchin472 @andre kua the steel price will not be big problem for danco,my family business is also steel stamping,customer still need your product,price will be mark up,doesnt mean steel price go up,everyone dont need to use steel right?
23/02/2021 1:13 PM


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