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Bursa Malaysia - 5276
Bloomberg - DMEC:MK
Reuters - DNCO.KL
Yahoo - 5276.kl

Sector            : Industrial Product and Services
Sub Sector    : Industrial Materials, Components and Equipment
Focus            : Trading Process Control Equipment and Metal Stamping

Company Profile

Dancomech Holdings Berhad (DANCO) is primarily involved in the trading and distribution of Process Control Equipment and Measurement Equipment. DANCO primary focus in palm oil and oleochemicals, oil and gas and petrol chemical and water treatment and sewage industries.

DANCO has four operation segment:

  1. Trading Division

  • 72.02 % of 2020 revenue

  • Trading and Distribution of process control equipment (such as valves, switches, actuators, busting discs/ explosion protection devices, expansion joints, float/stream traps, etc.) and industrial pump.

  • Danomech Engineering Sdn Bhd, wholly owned subsidiary, which focus on supplying the products to customer in palm oil and oleochemicals, oil and gas.

  • Optimis Engineering Sdn Bhd, 55 % owned subsidiary, which focus on supplying the products to customer in water and wastewater industry

  • Mechpump Sdn Bhd, 60 % owned subsidiary, which focus on the trading of industrial pump

  1. Pump Manufacturing Division

  • 0.81 % of 2020 revenue

  • Manufacture of Industrial Pump

  • Dancomech Pumps Sdn Bhd, 70 % owned subsidiary

  1. Metal Stamping Division

  • 27.16 % of 2020 revenue

  • Production of metal stamping parts and components, and design and manufacture of tools and dies

  • MTL Engineering Sdn Bhd, 70 % owned subsidiary acquired on 3 August 2020

  • Mainly focus on ACMV industries

  1. MHS Solutions Division

  • Contribute no significant revenue for 2020

  • Provision of material handling system solution

  • Areah Edar(M) Sdn Bhd, 55 % owned subsidiary acquired on 18 July 2018

  • Obtain SGD 12,010,901 project in Jurong Port on 7th September 2020 expected to complete in 26 January 2022

Income Statement



31 Dec 2020

31 Dec 2019

31 Dec 2018

31 Dec 2017

31 Dec  2016

Revenue

118,770,000

80,870,000

79,090,000

63,750,000

60,000,000

Earning Before Tax

21,420,000

19,930,000

20,560,000

14,940,000

17,610,000

Nett Profit

15,960,000

15,010,000

15,420,000

11,220,000

13,030,000

5 Years CAGR of Revenue

14.63 %

5 years CAGR of Nett Profit

4.14 %

Correlation of Revenue to Crude Palm Oil Price

0.58


DANCO 5 years CAGR of revenue is much higher than 5 years CAGR Nett Profit. This indicates that the profit margin for DANCO is dimishinshing. In August 2020, DANCO successfully acquired 70 % of MTL Engineering Sdn Bhd (MTL) in the Metal Stamping Division which contributed RM 32,255,879 within the three months which represented 27.16 % of the total revenue of 2020. MTL is mainly focus in HVAC business (97 % of revenue) which might be affected by Full Movement Control Order announce by the government from 1 st June 2021 to 14th June 2021 which might be extended further as the business is considered non essential business.


DANCO nett profit for 2020 does not increase much despite 46 % increase in revenue due to decrease of profit margin on trading segment from 23.48 % in 2019 to 15.40 % in 2020. Besides that, the effective tax rate also increase from 24.69 % to 25.44 %.


As a larger portion of trading segment revenue and from crude palm oil and oil and gas industry, the increase of price of crude palm oil from RM 3660 / MT in Jan 2020 to RM 3952 / MT in Jun 2020 with price reaching as high as RM 4525 / MT in May 2021 might increase the revenue of the trading segment. Aside crude palm oil, crude oil also increase from USD 51.99 per barrel in Jan 2021 to USD 66.68 in Jun 2021 might increase the revenue of trading segment which contribute 72.02 % of 2020 revenue.


Balance Sheet




31 Dec 2020

31 Dec 2019

31 Dec 2018

31 Dec 2017

31 Dec  2016

Current Ratio

3.79

9.54

7.12

8.78

10.6

Cash / Current Asset

41.14

57.41

47.69

54.52

56.95


DANCO current ratio had drop from 9.54 in 2019 to 3.79 in 2020 mainly due to the consolidation of MTL liability into the group financial statement. The current liability of DANCO had increase RM 11,690,000 in 2019 to RM 36,080,000 in 2020 almost by 3 times.

DANCO cash/current asset ratio had decrease from 57.41 % to 41.14 % due to cash payment for acquisition of MTL. Despite the decrease in cash, DANCO still had a healthy cash balance. The management manage to control the cash balance around 50 % of cash / current asset since 2016.


DANCO debt had increase from RM 1,720,000 in 2019 to RM 11,110,000 in 2020. DANCO is able to use the current low interest environment to expand its business.


Cash Flow



31 Dec 2020

31 Dec 2019

31 Dec 2018

31 Dec 2017

31 Dec  2016

Cash Flow from Operation

13,390,000

18,470,000

6,390,000

9,310,000

13,210,000

Cash Flow from Investing

-3,400,000

-19,300,000

590,000

-20,700,000

-2,800,000

Cash Flow from Financing

-5,380,000

-4,380,000

-5,490,000

-4,950,000

8,810,000

Free Cash Flow

13,080,000

17,890,000

5,780,000

3,140,000

12,100,000

5 years CAGR of Cash Flow from Operation

0.27 %

5 years CAGR of Free Cash Flow

1.57 %


DANCO cash flow from operations had not increase much over the past 5 years. Aside from that DANCO free cash flow only increased by 1.57 % annually from 2016 to 2020. This mainly due to continue acquired of new business Arah Edar (M) Sdn Bhd in 2018, Eureka ETA Sdn Bhd in 2018, MTL Engineering Sdn Bhd in 2020 and UTC Engineering Sdn Bhd in 2021. DANCO also share the profit with the shareholders as dividend.


Per Share Analysis




31 Dec 2020

31 Dec 2019

31 Dec 2018

31 Dec 2017

31 Dec  2016

Share Outstanding 

309,100,000

304,010,000

298,010,000

298,010,000

298,010,000

Price 31 December

0.63

0.505

0.45

0.425

0.745

BV/Share

0.45

0.42

0.40

0.36

0.34

P/E

12.20

10.22

8.70

11.29

17.04

5 years CAGR of Price (adjusted)

11.08 %


DANCO 5 year CAGR of adjusted price is 11.08 %. The price had adjusted for 2:1 stock split on 3rd May 2017.


Dividend




31 Dec 2020

31 Dec 2019

31 Dec 2018

31 Dec 2017

31 Dec  2016

Dividend Per Share

0.02

0.0175

0.0175

0.015

0.015

Dividend Payout

38.73 %

35.44 %

33.82 %

39.84 %

34.31 %

Dividend Yield

3.17 %

3.47 %

3.89 %

3.53 %

4.03 %

10 year Malaysia Government Bond

2.68 %

3.33 %

4.01 %

3.94 %

4.24 %


DANCO had dividend policy to payout 30 % of profit as dividend from 2016 to 2020 where the management had keep their promise. In March 2021, the management had decided to increase the to 40 % of the profit. 


DANCO dividend yield almost match with 10 year Malaysia Government Bond.


Warrant


Free warrant (Warrant DANCO-WA) had issued to shareholders on 03 May 2017. The warrant had an exercise price of RM 0.30 and an expiry date of 22-05-2022 (1 year maturity). The exercise price is lower than the current price hence the warrant can be exercised and dilute the share. As of 7 April 2021, last conversion of Warrant A, there are still 136,722,000 share remaining for conversion (44 % of current outstanding share)


Material Litigation


DANCO had a law case with SGV Builder Sdn Bhd since 2014. On 5 April 2021, DANCO had make the final settlement of RM 1.108,204.79. Currently DANCO had no other material litigation.


 Acquisition


  1. UTC Engineering Sdn Bhd

  • 15 April 2021

  • RM 2,750,000 for 55 % equity

  • Profit guarantee up to 31 December 2021

  • Electrical, Electronic, and Instrumentation Engineering Business for machinery use in industry

  • Vertical Integration

  • Loss Making company (RM 265,751) in 2020

  • Nett asset RM 1,128,751

  1. MTL Engineering Sdn Bhd

  • 3 August 2020

  • RM 23,800,000 + 4 dividend for 70 % equity

  • Producing metal stamping parts and component and design and manufacturing of tools and dies - HVAC, automotive and metal furniture

  • Depend on one customer 97 % of revenue (HVAC)

  • Absence of long term contract

  • Labour intensive depend on foreign worker

  • Profit for 2019 - RM 4,972,211

  • Nett assets is RM 35,462,168

  1. Eureka ETA Sdn Bhd

  • 8 August 2018

  • RM 600 for 60 % equity

  • Fertilizer and agro chemical product (plantation highly depend on CPO price)

  1. Arah Edar (M) Sdn Bhd

  • 18 July 2018

  • 55% equity

  • Providing material handling system solution (depend on contract)

  • Obtained Jurong Port Singapore project (SGD 12,010,901) in 7 September 2020. Project completed by 26 January 2022.


Research Report


No Recent research report


Peer Analysis




DANCO

UNIMECH

CBIP

Turbo

P/E

10.59

13.29

11.58

28.73

Dividend Yield

3.64

2.24

3.01

2.52


DANCO had the lowest P/E and highest dividend yield amongst its peers


Technical Analysis


DANCO Daily chart show a downward trench testing support of RM 0.53.


DANCO weekly chart also shows a support of RM 0.53 and a resistance of RM 0.67.




Summary of Industry Comparison

http://ivkls.blogspot.com/2021/06/stock-review-danco-5276-dancomech.html

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