• Overview. Dancomech Holdings Berhad (Dancomech) 4Q22’s core profit  rose by 14% YoY to RM6.4mn despite reporting a 5% decline in revenue.  The increase in core profit was backed by higher contribution from the  trading segment on the back of solid profit margin of >30%.

• Key highlights. Metal Stamping business drove Dancomech revenue in  4Q22, up by 29% YoY to RM33.8mn (represents 55% of overall sales)  owing to strong demand for air conditioner products.

• Against estimates: Inline. Dancomech posted record RM18mn in core  profit (+11% Yoy), thanks to higher contributions from Trading, Metal  Stamping, and E&E Engineering. Overall, the 12M22 core profit was  broadly in line with our estimate at 106%.

• Earnings revision. We revised up 2023F/2024F core profit forecast by  8%/ 8% after some housekeeping adjustments.

• Outlook. We are sanguine on Dancomech’s business prospects in 2023  to be driven by robust outlook within its Trading, Metal Stamping, and  E&E Engineering divisions. Given positive contribution from the  acquisition business; Metal Stamping and E&E Engineering,  management is planning to continue exploring further opportunities and  business collaborations to enhance its profitability in the long term.

• Our call. Upgrade our call on Dancomech to a BUY from a HOLD at a  higher TP of RM0.47, pegged at 10.5x PER to FY23 EPS of 4.4 sen.

Source: BIMB Securities Research - 28 Feb 2023