Dancomech Holdings Berhad (Dancomech) 1Q23’s core profit of  RM4.3mn (QoQ: -32%, YoY: +41%) was in line with our and consensus expectations, accounting for 22% and 20% of full year forecast. Despite challenging and uncertain market situation, we anticipate a better contribution from the Metal Stamping and E&E  Engineering divisions to be driven by the reopening of international borders post COVID-19 pandemic. Maintain a BUY call on Dancomech with unchanged TP of RM0.47, pegged at 10.5x PER to  2023 EPS of 4.4 sen.

• Againts estimate: Inline. 1Q23’s core profit of RM50mn was broadly inline with our and consensus expectations accounting for 22% and  20% of full year estimates respectively.

• Dividend. No dividend declared during the quarter. Nevertheless, we  expect Dancomech to declare a DPS of 2 sen in 2023F.

• QoQ. Dancomech’s 1Q23 core profit fell by 32% QoQ in tandem with  the decline in revenue (-18% QoQ) due to lower contribution from  the Trading (-14% QoQ) and Metal Stamping (-21% QoQ) (Chart 2)  business divisions.

• YoY. 1Q23’s core profit grew by 41% YoY supported by higher  contribution from the Trading segment (+20% YoY), which accounted for 41% of total revenue, thanks to the recovery of the local and  overseas market post COVID pandemic. However, the Metal  Stamping business which represents Dancomech’s largest revenue  (52% of revenue) fell by 4% due to lower demand from customers in  the air-conditioning industry. Given the Trading nature of business  which provides a higher margin, EBITDA margin expanded by 2.7ppts YoY to 14.1% in 1Q23 from 11.4% in 1Q22.

• Outlook. Despite the challenging and uncertain market situation, we  anticipate a better contribution from the Metal Stamping and E&E  Engineering divisions driven by the reopening of international  borders post COVID-19 pandemic. Besides, we foresee the  acquisition of JustEV on March 1, 2023 will offer a good opportunity  for Dancomech to venture into the electrical vehicle supply chain  equipment industry and diversify its overall business.

• Our call. Maintain a BUY call on Dancomech with unchanged TP of  RM0.47, pegged at 10.5x PER to 2023 EPS of 4.4 sen

Source: BIMB Securities Research - 29 May 2023