Dutech Holdings

[sykn]

I have added a bit after the price dipped to 48.5 cents today; doubt if it will go back to 44 cents at the present rate it is growing. Based on pure earning power alone, I estimate its intrinsic value at 70 cents, so if we apply a 50% margin of safety, should buy only at around 46.5 cents. But if I factor future growth, then I would give it an intrinsic value of 90 cents, which means it's a bargain to go in even at 50 cents. The only reason why I hesitate to go in heavy is because it's after all, still an S-chip, but it's financial performance the last 8 years (have not analysed FY16 yet) has not given me any reason to suspect any hanky-panky in this company. But still, caveat emptor; just my 2 cents worth.

[TTTI]

I have added a bit after the price dipped to 48.5 cents today; doubt if it will go back to 44 cents at the present rate it is growing. Based on pure earning power alone, I estimate its intrinsic value at 70 cents, so if we apply a 50% margin of safety, should buy only at around 46.5 cents. But if I factor future growth, then I would give it an intrinsic value of 90 cents, which means it's a bargain to go in even at 50 cents. The only reason why I hesitate to go in heavy is because it's after all, still an S-chip, but it's financial performance the last 8 years (have not analysed FY16 yet) has not given me any reason to suspect any hanky-panky in this company. But still, caveat emptor; just my 2 cents worth.

Intrinsic value of 70cents... that's pretty much ard what I got from my calculations based on projected FY17 earnings.
In Q4 results, they conservatively wrote off some assets, wrote of some receivables, and in the coming quarters, will be amortizing the goodwill.
All that will be a drag on earnings, but in the long run, is good for the company
FCF is still +be despite having to do 2 acquisitions in FY16, both funded internally!

[MINX]

I have added a bit after the price dipped to 48.5 cents today; doubt if it will go back to 44 cents at the present rate it is growing. Based on pure earning power alone, I estimate its intrinsic value at 70 cents, so if we apply a 50% margin of safety, should buy only at around 46.5 cents. But if I factor future growth, then I would give it an intrinsic value of 90 cents, which means it's a bargain to go in even at 50 cents. The only reason why I hesitate to go in heavy is because it's after all, still an S-chip, but it's financial performance the last 8 years (have not analysed FY16 yet) has not given me any reason to suspect any hanky-panky in this company. But still, caveat emptor; just my 2 cents worth.

Intrinsic value of 70cents... that's pretty much ard what I got from my calculations based on projected FY17 earnings.
In Q4 results, they conservatively wrote off some assets, wrote of some receivables, and in the coming quarters, will be amortizing the goodwill.
All that will be a drag on earnings, but in the long run, is good for the company
FCF is still +be despite having to do 2 acquisitions in FY16, both funded internally!

Intrinsic value of 70c, to cater for all the known risks & the unknown ones, a good entry price is 35c, correct? 

[punklitez]

gross margins in 4Q16 eroded from 28.1% to 23.7% in 4Q16 for high security segment.

i think the gross margins for high security segment will erode further in 1Q17.

steel prices averaged 3750 in the first 2 months of 2017 compared to 2300 for 1Q16. That's a 62% increase in steel prices. Steel forms approx 40% of group total production cost. 

it is a good stock nonetheless. i will keep it in my shopping list at the moment and re-enter after 1Q17 results.

[TTTI]

I have added a bit after the price dipped to 48.5 cents today; doubt if it will go back to 44 cents at the present rate it is growing. Based on pure earning power alone, I estimate its intrinsic value at 70 cents, so if we apply a 50% margin of safety, should buy only at around 46.5 cents. But if I factor future growth, then I would give it an intrinsic value of 90 cents, which means it's a bargain to go in even at 50 cents. The only reason why I hesitate to go in heavy is because it's after all, still an S-chip, but it's financial performance the last 8 years (have not analysed FY16 yet) has not given me any reason to suspect any hanky-panky in this company. But still, caveat emptor; just my 2 cents worth.

Intrinsic value of 70cents... that's pretty much ard what I got from my calculations based on projected FY17 earnings.
In Q4 results, they conservatively wrote off some assets, wrote of some receivables, and in the coming quarters, will be amortizing the goodwill.
All that will be a drag on earnings, but in the long run, is good for the company
FCF is still +be despite having to do 2 acquisitions in FY16, both funded internally!

Intrinsic value of 70c, to cater for all the known risks & the unknown ones, a good entry price is 35c, correct? 

Huh...
in that same vein, a good entry price is 1 cent!

I don't think we can just fix arbitrarily a 50% MOS. It depends on the industry, the business and the management.
For eg. if the industry typically trades at a substantial discount to BV, then your MOS has to be wider to account for the fact that the real value is always at a discount anyway.
If the business is funded by a lot of debt, you might need a wider MOS because you don't know when the environment will change and credit dries up etc.
I really wouldn't try to second guess the craziness of the markets.... but I highly doubt you'd see 35 cents anytime soon, barring a GFC in 2017.
I bought the 570,000 in 2015 when it was around $0.27,28
and most recently added 60,000 in 2016 when it was around $0.45.
IMHO that's a price with a good enough MOS. I'd add again if it reaches there, and if Dutech isn't a large enough part of my portfolio.
Gotta pay some attention to portfolio allocation too, previously I made some mistakes with position sizing.

[opmi]

CIMB is  was Dutech #1 cheerleader..

Dutech Holdings Limited | CIMB
 
   
■  FY16 core net profit in line with our expectations; it rose 8% yoy due mainly to the strong first 9M, which benefited from favourable FX and benign steel cost.
■  However, core net profit fell 41.5% yoy in the 4Q due to the negative contribution from the newly acquired Metric Group.
■  GPM of high security segment fell 4.4% pts yoy in 4Q16 due to higher steel price.
■  We cut FY17-18F core EPS by 24% to reflect 1) the near-term drag from the loss-making Metric, and 2) the anticipated lower GPM for the high security segment.
■  We downgrade Dutech to Hold, with a lower target price of S$0.55.
 


FY16 core net profit in line, rising 8% yoy
Dutech’s FY16 core net profit was in line with our expectations at 98% of our forecast. It rose 8% yoy to Rmb102.1m (FY15: Rmb94.6m). Group revenue rose 16.5% yoy to Rmb1.39bn in FY16 (FY15: Rmb1.19bn), led by higher sales in the high security segment (+Rmb25m yoy due to sales growth in ATM safes) and the business solutions segment (+Rmb178m yoy due to fresh contribution from Krauth and the Metric Group).

Metric Group contributing net loss in 4Q16
Despite the decent full-year core net profit growth, we note that the growth can be mainly attributable to the strong first 9 months (forming 93% of full-year core net profit). In the 4Q, group core net profit saw a 41.5% yoy decline to Rmb7.5m (4Q15: Rmb12.9m) as the Metric Group (acquired in Oct 16) contributed negatively (core net loss of c.Rmb5m based on our back-of-the-envelope estimate). We expect Metric to remain a drag on group profitability in FY17.

Rising steel price weighs on high security segment GPM outlook
We expect Dutech to be a key loser in a rising steel price environment. Over the past one year, China domestic hot rolled steel price rebounded from the 10-year low of Rmb2,000 per metric tonne to Rmb3,800 as of today; this is significantly higher than our previous projection of an average Rmb2,600 per metric tonne for FY17-18F. 4Q16 has seen the negative impact of elevated steel price, with GPM for the high security segment (safe manufacturing business) falling 4.4% pts yoy (4Q16: 23.7% vs. 4Q15: 28.1%).

Cut FY17-18F core EPS by 24%
We cut our FY17-18 EPS forecasts by 24% to reflect 1) the near-term drag of Metric on group profitability, and 2) the anticipated lower high security segment GPM due to the elevated steel price. After the cuts, we are now looking at a 9.3% yoy drop in core EPS in FY17 vs. our previously forecast growth. We expect core EPS to resume growth in FY18F, after the group fully consolidates Metric and when steel price stabilises.

Downgrade Dutech to Hold on subdued FY17 earnings outlook
In line with our core EPS cuts, we downgrade Dutech from Add to Hold and lower our FY17 DCF-based target price to S$0.55 (WACC: 12%). Dutech currently trades at 9.7x FY17F core P/E, a slight discount to its close peer and the market leader Gunnebo’s 10.9x. Dutech’s FY17F dividend yield of 2% is lower than Gunnebo’s 3.2%.

Waiting for synergy to be unlocked from Metric
Management is focused on streamlining Metric’s operations to unlock its synergy with Dutech’s existing businesses. We expect it to take 1-2 years for Dutech to turn around Metric. Potential improvement in profitability and the eventual turnaround of Metric are key re-rating catalysts. A further increase in steel prices is a key risk.

[opmi]

gross margins in 4Q16 eroded from 28.1% to 23.7% in 4Q16 for high security segment.

i think the gross margins for high security segment will erode further in 1Q17.

steel prices averaged 3750 in the first 2 months of 2017 compared to 2300 for 1Q16. That's a 62% increase in steel prices. Steel forms approx 40% of group total production cost. 

it is a good stock nonetheless. i will keep it in my shopping list at the moment and re-enter after 1Q17 results.

read that Dutech pre-order and pre-pay 1 year supply of steel in 1Q each year. So the GM will continue to drop as the cheaper steel inventories are used up and replaced with higher price
steel. Working capital will also increase to stock the steel. At least steel wont go chao sng like potato starch....

[TTTI]

gross margins in 4Q16 eroded from 28.1% to 23.7% in 4Q16 for high security segment.

i think the gross margins for high security segment will erode further in 1Q17.

steel prices averaged 3750 in the first 2 months of 2017 compared to 2300 for 1Q16. That's a 62% increase in steel prices. Steel forms approx 40% of group total production cost. 

it is a good stock nonetheless. i will keep it in my shopping list at the moment and re-enter after 1Q17 results.

read that Dutech pre-order and pre-pay 1 year supply of steel in 1Q each year. So the GM will continue to drop as the cheaper steel inventories are used up and replaced with higher price
steel. Working capital will also increase to stock the steel. At least steel wont go chao sng like potato starch....

Not necessarily in Q1.
They've stocked up on steel in Q4.

Inventories jumped from RMB 152mil to RMB 274mil y-o-y

"Inventories increased by RMB122.5 million from RMB151.8 million as at 31 December 2015 to RMB274.3 million as at 31 December 2016 mainly due to steel stocking up in order to mitigate the impact of steel price rise and the acquisition of Krauth and Metric, the total balance of which was RMB93.5 million as at 31 December 2016."

Ah that explains it. The CIMB report I mean.

[TTTI]

CIMB is  was Dutech #1 cheerleader..

Dutech Holdings Limited | CIMB
 
   
■  FY16 core net profit in line with our expectations; it rose 8% yoy due mainly to the strong first 9M, which benefited from favourable FX and benign steel cost.
■  However, core net profit fell 41.5% yoy in the 4Q due to the negative contribution from the newly acquired Metric Group.
■  GPM of high security segment fell 4.4% pts yoy in 4Q16 due to higher steel price.
■  We cut FY17-18F core EPS by 24% to reflect 1) the near-term drag from the loss-making Metric, and 2) the anticipated lower GPM for the high security segment.
■  We downgrade Dutech to Hold, with a lower target price of S$0.55.
 


FY16 core net profit in line, rising 8% yoy
Dutech’s FY16 core net profit was in line with our expectations at 98% of our forecast. It rose 8% yoy to Rmb102.1m (FY15: Rmb94.6m). Group revenue rose 16.5% yoy to Rmb1.39bn in FY16 (FY15: Rmb1.19bn), led by higher sales in the high security segment (+Rmb25m yoy due to sales growth in ATM safes) and the business solutions segment (+Rmb178m yoy due to fresh contribution from Krauth and the Metric Group).

Metric Group contributing net loss in 4Q16
Despite the decent full-year core net profit growth, we note that the growth can be mainly attributable to the strong first 9 months (forming 93% of full-year core net profit). In the 4Q, group core net profit saw a 41.5% yoy decline to Rmb7.5m (4Q15: Rmb12.9m) as the Metric Group (acquired in Oct 16) contributed negatively (core net loss of c.Rmb5m based on our back-of-the-envelope estimate). We expect Metric to remain a drag on group profitability in FY17.

Rising steel price weighs on high security segment GPM outlook
We expect Dutech to be a key loser in a rising steel price environment. Over the past one year, China domestic hot rolled steel price rebounded from the 10-year low of Rmb2,000 per metric tonne to Rmb3,800 as of today; this is significantly higher than our previous projection of an average Rmb2,600 per metric tonne for FY17-18F. 4Q16 has seen the negative impact of elevated steel price, with GPM for the high security segment (safe manufacturing business) falling 4.4% pts yoy (4Q16: 23.7% vs. 4Q15: 28.1%).

Cut FY17-18F core EPS by 24%
We cut our FY17-18 EPS forecasts by 24% to reflect 1) the near-term drag of Metric on group profitability, and 2) the anticipated lower high security segment GPM due to the elevated steel price. After the cuts, we are now looking at a 9.3% yoy drop in core EPS in FY17 vs. our previously forecast growth. We expect core EPS to resume growth in FY18F, after the group fully consolidates Metric and when steel price stabilises.

Downgrade Dutech to Hold on subdued FY17 earnings outlook
In line with our core EPS cuts, we downgrade Dutech from Add to Hold and lower our FY17 DCF-based target price to S$0.55 (WACC: 12%). Dutech currently trades at 9.7x FY17F core P/E, a slight discount to its close peer and the market leader Gunnebo’s 10.9x. Dutech’s FY17F dividend yield of 2% is lower than Gunnebo’s 3.2%.

Waiting for synergy to be unlocked from Metric
Management is focused on streamlining Metric’s operations to unlock its synergy with Dutech’s existing businesses. We expect it to take 1-2 years for Dutech to turn around Metric. Potential improvement in profitability and the eventual turnaround of Metric are key re-rating catalysts. A further increase in steel prices is a key risk.

"Downgrade Dutech to Hold on subdued FY17 earnings outlook 

In line with our core EPS cuts, we downgrade Dutech from Add to Hold and lower our FY17 DCF-based target price to S$0.55 (WACC: 12%). Dutech currently trades at 9.7x FY17F core P/E, a slight discount to its close peer and the market leader Gunnebo’s 10.9x. Dutech’s FY17F dividend yield of 2% is lower than Gunnebo’s 3.2%. "

Gunnebo's FY16 EPS is 2.71 SEK:
http://www.gunnebogroup.com/en/GunneboDo...t-2016.pdf

Current share price is 43.7 SEK:
http://www.gunnebogroup.com/en/investors

So PER is 16 or so, which is pretty much hovering around the same level as when I first monitored Gunnebo a year ago
https://thumbtackinvestor.wordpress.com/...gs/page/2/

Not sure how CIMB came up with 10.9x.
Unless they mean forecast earnings for FY17. But then again, Gunnebo didn't come up with any forecasted earnings, and even if they did, why rely on forecasted earnings vs historical?

[BlueKelah]

Steel price up coz China shutting all those furnace due to their overpollution.

Looks like time to buy some hupsteel and AEH

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