Company Background. Dancomech Holdings (Dancomech) is primarily involved in trading/distributing process control equipment and measuring instruments. The group’s business activities are categorised into 5 segments: (i) trading, (ii) pump manufacturing, (iii) material handling system solutions, (iv) metal stamping, and (v) electrical & electronics (E&E) engineering. Dancomech supplies its products to palm oil & oleochemicals, oil & gas, petrochemical and water treatment/sewerage sectors.

Prospects. (i) Actively pursuing potential opportunities for acquisitions & collaborations to boost the group’s profitability and constantly looking for opportunities to develop new markets, (ii) On 1 March 2023, the group acquired a 70% stake in JusEV Charging Network, opening up possibilities for entry into the electric vehicle supply equipment (EVSE) industry, and (iii) Dancomech has distributed dividends in prior financial years in line with its policy to maintain a dividend payout ratio of 40% of annual net profit.

Financial Performance. In 1HFY23, Dancomech reported a higher revenue of RM104.9mil (+11% YoY) with a PAT of RM9.9mil (+31.7% YoY). This was mainly due to higher contributions from trading and E&E engineering segments in line with the recovery of local and overseas markets.

Valuation. Dancomech is trading at an attractive FY23F P/E of 9.3x, versus Bursa Industrial Production Index’s 24x. As a comparison, Engtex Group, which distributes pipes/valves/fittings (PVF), plumbing materials and manufacture of steel PVF, pipe asphalt & coatings, trades at a much higher FY23F P/E of 22.6x.

Technical Analysis. Dancomech may trend higher after it broke above the RM0.43 resistance with a long white candle a few sessions ago. With the stock pushing near its 52-week high as well, upward momentum appears to be picking up. A bullish bias may emerge above the RM0.43 level, with stop-loss set at RM0.39, below the 50-day EMA. Towards the upside, near-term resistance level is seen at RM0.50, followed by RM0.54.

Source: AmInvest Research - 20 Nov 2023