And Dancomech Holdings Bhd delivers yet again.

Yes, it's true that Dancomech had to perform at a 60% capacity during the lockdown, yet it is mind boggling how they still managed to deliver stellar results.  

To add further insult to Covid-19, Dancomech even declared an interim dividend of 0.75 sen.

Talk about arrogance!

For those interested, the dividends have an ex date of Sep 22, while payment date will be Oct 7. There is still time.

For Dancomech’s second quarter to June 30, 2021, net profit was up 41.49% to RM4.5mil while revenue grew 2.79 times (x) to RM55.99mil from RM19.99mil previously.

Thus for the six month period, net profit was up 17.46% to RM7.37mil while revenue was up 2.44x to RM96.99mil.

Now, this sort of quarterly profit was what Dancomech recorded during normal times.

So why was there such a big improvement especially for its topline?

This could be due to the two new acquisitions made by Dancomech this year and last year.

The better results were mainly due to the revenue contribution of RM16.98mil from Dancomech’s metal stamping business (which the group acquired on Aug 3 2020) and RM3.1mil from its E&E Engineering business (which the group acquired on April 15, 2021), coupled with the increase in revenue contribution of RM15.48mil from its MHS Solutions business (from the progress of its project at Jurong Port, Singapore).

This project was first announced to Bursa on Sep 7, 2020.

Contribution from metal stamping increases

Thus what does this all mean going forward?

For one, perhaps it is time to recognize Dancomech as a metal stamping company.

The other listed metal stamping company on Bursa Malaysia is UWC Bhd.

Looking at Dancomech’s second quarter results, the metal stamping business (via MTL Engineering Sdn Bhd) contributed some 30% to Dancomech’s topline.

According to management, this contribution was below their estimations, as there were limitations due to the 60% workforce capacity.

Prior to this, MTL Engineering on its own consistently generated net profit of RM5mil to RM6mil per year.

Thus with the 70% stake it owns in MTL, Dancomech should be able to roughly recognize some RM3mil to RM4mil in net earnings per year.

Furthermore, don’t forget the 55% equity interest in UTC Engineering Sdn Bhd that Dancomech purchased earlier this year for RM2.75mil.

That comes with a profit guarantee of roughly RM458,000 per year for the next six years.

Without MTL and UTC, Dancomech roughly makes RM15mil net profit per year.

Based on these new acquisitions, Dancomech could deliver some RM20mil in earnings for FY22.

Still at single digit valuations

At that earnings, Dancomech is only trading at a PE of 9.85 times at Monday's closing price of 60.5sen.

Thats pretty undervalued considering Dancomech is a net cash company with cash of RM25.86mil as of June 30, 2021.

Dancomech also has a 30% dividend payout ratio policy and pays dividends twice a year.

At its current price, the stock yields 3.3%.

It also looks like Dancomech isn’t happy to just be a stable dividend paying company anymore. It appears that the company is looking for more acquisitions.

In its notes to its prospects, Dancomech said that the Group will continue to strive hard to pursue sales in the domestic and overseas markets, where circumstances permit.

In addition, the group will continue to seek and explore potential opportunities for acquisitions and collaborations in order to enhance its profitability.

Perhaps it is time to relook Dancomech before it is fully acknowledged by the market as a metal stamping company.