• Upgrade our call from HOLD to BUY with a higher TP of RM0.57. Dancomech (Danco)’s 1HFY24 revenue increase marginally by 0.1% YoY to RM105mn due to higher revenue recorded from the Trading and Metal Stamping business. The company's core PATAMI rose by 14.5% YoY to RM10.7mn driven by higher other income, such as calibration and fabrication charges, the reversal of provision for expected credit losses, and interest income. Overall, 1HFY24’s core PATAMI was inline with both our and Bloomberg consensus expectations, representing 49% of the full-year forecasts. We upgrade our recommendation to BUY from HOLD with higher target price (TP) of RM0.57 (from RM0.52), based on 10.5x PER applied to FY25F EPS 5.4sen, as we roll over our valuation to FY25F.

• Key Highlights. Despite a modest revenue growth of 1.8% YoY in 2QFY24, core PATAMI rose by 22.9% to RM6.2mn from RM5.0mn in 2QFY23. This was due to higher interest income and reversal of provision for expected credit losses. Danco declared a first single-tier DPS of 0.75sen, translating to 54% dividend payout.

• Earnings Revision. No change to our forecast.

• Outlook. The company remains committed to intensifying its sales initiatives while proactively managing potential challenges arising from lower-than-projected external demand, heightened geopolitical tensions, and significant domestic commodity production declines.

Source: BIMB Securities Research - 23 Aug 2024