PETALING JAYA: Dancomech Holdings Bhd’s earnings are expected to register an annual growth rate of 14% for the next three years driven by demand recovery in the oil and gas (O&G) sector as well as from its recent acquisitions, according to UOB Kay Hian Research.
“With the anticipated reopening of the global economy that accompanies the dispensation of Covid-19 vaccines, Dancomech is looking forward to enjoying brisk demand growth over the next couple of years arising from numerous factors such as demand recoveries from its key customers from the O&G sectors which have earlier been badly impacted by the Covid-19 pandemic and contributions from the newly-bagged subcontract at Jurong Port, ” it said in a report.
Dancomech’s earnings would also be driven from its newly-acquired 70%-owned subsidiary MTL Engineering and potential growth in order book from the upcoming water treatment and sewerage plants’ capacity expansion.
“We estimate Dancomech to register core net profit of RM23mil and RM24mil in 2021 and 2022, respectively, which implies a three-year compounded annual growth rate (CAGR) of 14% in 2020 to 2022. This is on the back of a three-year revenue CAGR of 15%, ” it said.
Dancomech trades and supplies equipment to varied segments including those involved in oleochemicals, palm oil refineries as well as engineering, procurement, construction and commissioning works.
UOB Kay Hian said while Dancomech supplies most of its products to the plantation industry especially to palm oil mills and oleochemical plants and O&G industry, it also supplies to other sectors such as water treatment plants and general industries.
“Dancomech is poised to capture the growth in sales of its process control equipment and measurement instruments, riding on the ramp-up of business activities as well as expansion of its vendors from various industries, ” it said.
UOB Kay Hian initiated coverage on the stock with a “buy” call with a target price of 70 sen per share based on 10 times fully diluted 2021 forecast price earnings ratio plus post-warrant conversion net cash of RM92mil, which is equivalent to 20 sen per share for the enlarged share base.