DANCO (5276) DANCOMECH HOLDINGS BHD - Wows the market with BEST EVER results in Q3
Let your actions always speak through your results.
That is exactly what Dancomech Holdings Bhd (stock code 5276) did yesterday evening.
Despite Covid-19, poor economic conditions, MCO, RMCO or CMCO, this company simply delivered stellar third quarter results.
For the third quarter ended Sept 30, 2020, the company's revenue jumped 121% to RM36.71mil while net profit jumped 61.38% to RM5.65mil.
This was the BEST EVER quarterly revenue and net profit.
This makes us wonder what the fourth quarter results will be like, considering the company already did so well under challenging conditions.
Based on notes to Bursa Malaysia, the management of Dancomech seem pretty confident with the company's ability to maintain this momentum.
Management said that the good results were helped by MTL (the newly acquired 70%-owned subsidiary of the company) that immediately contributed positively to the Group, and will continue to do so moving forward, barring any unforeseen circumstances.
"In addition, the Group will continue to seek and explore potential opportunities for acquisitions and collaborations in order to enhance our profitability."
"Based on the above, the prospects and performance for the remaining quarter of this financial year ending 31 December 2020 is expected to be encouraging," said Dancomech.
Dancomech is involved in the trading and distribution of process control equipment and measurement instruments and industrial pump.
Their customers are mainly from the palm oil and oleochemicals, oil and gas, and water and wastewater industries.
Currently, they are the market leader in the valve business and their consistent ability to deliver has enabled them to command attractive gross profit margins at some 40%.
Super compelling valuations
You don't find a safer stock than Dancomech.
Its management led by Daniel Aik Swee Tong, are proper and sound businessmen.
Currently, Aik and his family control some 68.26% of the company.
Since the company's inception in 1989, the company has NEVER EVER recorded a loss.
The company also consistently pays dividends twice a year. Now, there are potential capital appreciation upside from future Mergers & Acquisitions.
Valuations wise, Dancomech is trading at a historical PE of 12.6 times.
Nonetheless, its earnings base is now larger since it acquired a 70% stake in MTL Engineering Sdn Bhd back in August for RM23.8 million.
MTL is in the business of producing metal stamping parts and components.
Without MTL, Dancomech roughly makes RM15mil net profit per year.
On its own, MTL Engineering consistently generates net profit of RM5mil to RM6mil per year.
Thus with the 70% stake in MTL, Dancomech should be able to recognize another RM3mil to RM4mil in net earnings per year.
Based on this new acquisition, Dancomech could deliver some RM18mil in earnings next year.
At that earnings, Dancomech is only trading at a PE of 10.5 times at Monday's closing price of 61.5 sen.
That's pretty undervalued considering that Dancomech is a net cash company with cash of RM32.85mil as of Sep 30, 2020.
Dancomech also has a 30% dividend payout ratio policy and pays dividends twice a year. This means the next dividend should be coming in the NEXT QUARTER.
At its current price, the stock yields 2.8%.
Surely this fundamentally sound company does not deserve to trade at 10 times PE. Why aren't we even asking for 20 times PE?
At 15x PE, it would trade at 88.5sen. (41.6% upside)
At 20x PE, it would trade at RM1.18. (88.8% upside)
Perhaps we needn't wait that long for the market to recognize Dancomech's market value.