MARKET DEVELOPMENT
CPO Price Recovery Bodes Well for Dancomech - MIDF Research
CPO Price Recovery Bodes Well for Dancomech - MIDF Research
08/07/2016 (Borneo Post) - The recovery of crude palm oil (CPO) prices in the first few months of the year bodes well for Dancomech Holdings Bhd (Dancomech), the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) says.
According to MIDF Research in its initial public offering (IPO) note, 59.13 per cent of Dancomech’s revenue comes from customers in the palm oil and oleochemicals industry.
The research arm noted that following that, Dancomech derives 13.7 per cent of its revenue from customers in the oil and gas (O&G) and petrochemicals industry.
“Brent crude, for instance, found a ground that ranges from US$47 per barrel to US$50 per barrel,” it said.
“The stabilising and improving commodity prices could lead to a steadier stream of investment activities by industry players, which in turn will have a positive spillover for Dancomech.”
An interesting highlight of Dancomech is that the group intends to set up new offices in Johor, Sabah and Sarawak.
MIDF Research noted that an office-cum-store in Johor Bahru is planned to cater for the potential demand growth from the activities at RAPID, Pengerang.
“It also aims at setting up offices in Bintulu, Sarawak and Lahad Datu, Sabah to enhance its services to its customers.
“These locations are identified because they are considered the centre of palm oil and oleochemicals as well as O&G petrochemical business activities.
“Topping that, it targets to further expand its product range as well as to expand into more oversea markets when opportunities present,” the research arm said.
MIDF Research further noted that in the past three years, Dancomech’s main overseas market is Indonesia, contributing 17 per cent-20 per cent to the group’s sales. It explained that these plans are positive for the company as they do not require high capital expenditure (capex).
On Dancomech’s financials, MIDF Research highlighted that the group’s gross gearing level is healthy at 0.11 times.
“It is also sitting on a pre-IPO sizeable cashpile of RM27.9 million, which translates into 18.7sen per share,” the research arm said.
“Post-listing, it will be in a net cash position (after paring down borrowings and listing expenses) of RM40.1 million.”
Based on the assumption of a 30 per cent payout, MIDF Research estimated a dividend yield of approximately three per cent in financial year 2017 forecast (FY17F).
The research arm noted that interestingly, Dancomech’s cash and cash equivalents have been growing steadily in the past three years, with a compound annual growth rate (CAGR) of 19.1 per cent from FY13-FY15.
“The company’s profit recorded a jump of +69 per cent in FY13 partially due to a one-off gain of RM8.44 million from disposal of assets,” it said.
It added that stripping off the one-off gain, earnings rose only by +14 per cent year on year (y-o-y), which is still commendable.
As for Dancomech’s profit before tax (PBT) margins, MIDF Research noted that it has ranged from 22.50 per cent to 38.46 per cent in the past three years.
The research arm further noted that that is much higher compared to some of Dancomech’s peers.
“For example, Pantech Group Holdings Bhd (Pantech), had registered PBT margins that ranged from 10.86 per cent to 13.07 per cent from FY12 to FY15.
“Another peer, Unimech Group Bhd (Unimech) recorded PBT margins between 8.63 per cent and 15.51 per cent in the same period,” it said.
However, MIDF Research noted that the business nature of these two peers is still somewhat different from Dancomech due to the specific products that they make and sell.
“Pantech sells valves, steel fittings and pipes mainly to the O&G industry while Unimech sells valves, pipe fitting and boiler parts,” it added.
MIDF Research gathered that one of the reasons Dancomech is able to get higher margins is that the group provides value-added services such as assembling different parts to make a higher-functioning component, testing and customisation.
The research arm pointed out that some of the products Dancomech trades are highly specialised, which is why the group is able to command better pricing.
According to MIDF Research in its initial public offering (IPO) note, 59.13 per cent of Dancomech’s revenue comes from customers in the palm oil and oleochemicals industry.
The research arm noted that following that, Dancomech derives 13.7 per cent of its revenue from customers in the oil and gas (O&G) and petrochemicals industry.
“Brent crude, for instance, found a ground that ranges from US$47 per barrel to US$50 per barrel,” it said.
“The stabilising and improving commodity prices could lead to a steadier stream of investment activities by industry players, which in turn will have a positive spillover for Dancomech.”
An interesting highlight of Dancomech is that the group intends to set up new offices in Johor, Sabah and Sarawak.
MIDF Research noted that an office-cum-store in Johor Bahru is planned to cater for the potential demand growth from the activities at RAPID, Pengerang.
“It also aims at setting up offices in Bintulu, Sarawak and Lahad Datu, Sabah to enhance its services to its customers.
“These locations are identified because they are considered the centre of palm oil and oleochemicals as well as O&G petrochemical business activities.
“Topping that, it targets to further expand its product range as well as to expand into more oversea markets when opportunities present,” the research arm said.
MIDF Research further noted that in the past three years, Dancomech’s main overseas market is Indonesia, contributing 17 per cent-20 per cent to the group’s sales. It explained that these plans are positive for the company as they do not require high capital expenditure (capex).
On Dancomech’s financials, MIDF Research highlighted that the group’s gross gearing level is healthy at 0.11 times.
“It is also sitting on a pre-IPO sizeable cashpile of RM27.9 million, which translates into 18.7sen per share,” the research arm said.
“Post-listing, it will be in a net cash position (after paring down borrowings and listing expenses) of RM40.1 million.”
Based on the assumption of a 30 per cent payout, MIDF Research estimated a dividend yield of approximately three per cent in financial year 2017 forecast (FY17F).
The research arm noted that interestingly, Dancomech’s cash and cash equivalents have been growing steadily in the past three years, with a compound annual growth rate (CAGR) of 19.1 per cent from FY13-FY15.
“The company’s profit recorded a jump of +69 per cent in FY13 partially due to a one-off gain of RM8.44 million from disposal of assets,” it said.
It added that stripping off the one-off gain, earnings rose only by +14 per cent year on year (y-o-y), which is still commendable.
As for Dancomech’s profit before tax (PBT) margins, MIDF Research noted that it has ranged from 22.50 per cent to 38.46 per cent in the past three years.
The research arm further noted that that is much higher compared to some of Dancomech’s peers.
“For example, Pantech Group Holdings Bhd (Pantech), had registered PBT margins that ranged from 10.86 per cent to 13.07 per cent from FY12 to FY15.
“Another peer, Unimech Group Bhd (Unimech) recorded PBT margins between 8.63 per cent and 15.51 per cent in the same period,” it said.
However, MIDF Research noted that the business nature of these two peers is still somewhat different from Dancomech due to the specific products that they make and sell.
“Pantech sells valves, steel fittings and pipes mainly to the O&G industry while Unimech sells valves, pipe fitting and boiler parts,” it added.
MIDF Research gathered that one of the reasons Dancomech is able to get higher margins is that the group provides value-added services such as assembling different parts to make a higher-functioning component, testing and customisation.
The research arm pointed out that some of the products Dancomech trades are highly specialised, which is why the group is able to command better pricing.