• We recently met with the management team of MTL Group (MTL), a 70%-owned subsidiary of Dancomech Holdings Berhad (Dancomech). Following the meeting, we remain optimistic on Dancomech Metal Stamping Division given solid demand for heating, ventilation and air conditioning (HVAC) and metal furniture productssubsequent to the lifting of Movement Control order (MCO) and reopening of international borders.

• We expect revenue for Metal Stamping Division to grow by 40% to RM108.5mn in 2022, overtaking the Trading Division. However, a relatively low gross profit margin of between 10% - 12% for the division could put a cap to earnings.

• Maintain a HOLD call on Dancomech at unchanged TP of RM0.37 pegged at 10x PER to 3.7 sen FY23F EPS.

A One-Stop Solution Provider for Metal Stamping Services

MTL Engineering Sdn Bhd (MTL) was incorporated in 1992 and involves in the fabrication of metal stamping, CNC turrent punching, sheet metal bending, in-house tool and die design, as well as a provider of quality Epoxy powder coating services to customers for heating, ventilation, and air conditioning (HVAC) products. Since the commencement of operations, MTL has three factories in Shah Alam with a total combination of factory’s land built-up of circa 211,200 sq.ft and a total workforce of 326. In 2020, Dancomech Holdings Berhad (Dancomech) entered into a share acquisition agreement (SSA) and acquired a 70% equity in MTL Engineering, in line with its long-term strategy to expand and diversify its business operations.

Solid Demand for HVAC, whilst Metal Furniture Products Picking Up

According to management, MTL production lines are currently hitting a maximum capacity of 90-95% primarily to clear the backlog orders for HVAC parts and components as well as to catersfor new orders for metal furniture products following the lifting of movement restriction and reopening of international borders. For HVAC parts and components, MTL can produce up to 2.3mn units per month, with around 90% of productions dominated by two prominent players within the HVAC industry. MTL is also seeing a pick-up in orders for metal furniture products from Thailand and Australia. Note that MTL’s metal furniture is Italian designed which is known for its good quality, durability, and innovative design. To cope with solid demand for HVAC products, MTL remains committed to expand via land acquisition and adopting more automation and robotic system. MTL expects the capacity rate to increase progressively by 20% within two years.

Source: BIMB Securities Research - 30 Sept 2022