• We turned positive on Dancomech Holdings Berhad (Dancomech)  following our recent meeting with the Group Chief Financial  Officer (CFO), Mr. Tang Yuen Kin.

• Management guided a better 2023F earnings prospects for  Dancomech to be driven by the Metal Stamping and Trading  business, though at a moderate growth rate due to a slowdown  in the global economy amid inflationary pressure, ongoing supply  chain bottleneck, geopolitical tension, and intense competition.

• We raise 2022F -2024F earnings between 11% - 19% as we  increase our revenue and gross profit margin assumption.

• Maintain a HOLD call on Dancomech at a higher TP of RM0.44 (from RM0.37) pegged at 10.5x PER to 4.2 sen FY23F EPS.

Better 2023’s Earnings Outlook

We recently contacted Dancomech Holdings Berhad (Dancomech)’s  Chief Financial Officer (CFO), Mr. Tang Yuen Kin following its  impressive 3Q22 financial performance which took us by a surprise.  Following our conversation, we turned positive on the company’s 2022F and 2023F outlook to be driven by better business prospects  for the Metal Stamping and Trading business. However, the  management guided that growth would be at a moderate rate given  the slowdown in the global economy amid inflationary pressure,  ongoing supply chain bottleneck, geopolitical tension, and intense competition.

Moderate Growth for Metal Stamping while Slightly Improvement  for Trading Business

Management guided a moderation in Metal Stamping business  growth in 2023 as backlog orders will be cleared by the end of 2022.  Notwithstanding that, Dancomech has secured orders from its  customers for the new heating, ventilation, and air-conditioning  (HVAC) products at a higher margin for 2023. Meanwhile, the Trading  business is expected to increase slightly in 2023 as Dancomech is set  to secure more new customers (both local and overseas) despite  intense competition from industry players which would put pressure  on margins.

Earnings Revision

Following Dancomech better earnings guidance for 2022F and 2023F,  we raise 2022F -2024F earnings between 11% - 19% as we increase  our revenue and profit margin assumptions across all business  segments.

Maintain HOLD at a higher TP of RM0.44

We maintain a HOLD call on Dancomech at a higher TP of RM0.44 (from RM0.37), pegged at 10.5x PER (5-year average forward PER) to  4.2 sen FY23F EPS.

Source: BIMB Securities Research - 13 Dec 2022