Excerpts from analysts' report

CIMB analysts: Roy Chen & William Tng, CFA

dutech gunsafes1.15In Dutech's warehouse in Nantong, China: Gun safes destined for the US market. NextInsight file photo.■ Asia’s largest safe manufacturer; key customers include the world’s top ATM manufacturers, weapon safe suppliers and gaming terminal suppliers. 

■ Previous successful M&As enabled the group to realise synergies and venture into higher value-adding intelligent terminal business. 

■ Recorded 22% sales CAGR in FY07-14; 9M15 core earnings reached record high. GPM continued to improve due to the fast declining steel price. 

■ 4.9x TTM P/E vs. peer and customers’ 14.4x; Rmb112m net cash at end-3Q15. 

A global leading manufacturer of high security equipment
According to the group’s FY14 annual report, Dutech is Asia’s largest safe manufacturer in terms of sales and production capacity. Its key products include ATM safes, gun safes, commercial safes and cash handling systems. It also designs and manufactures intelligent terminals and electromechanical equipment for semi-conductor, automotive and printing industries. Its production facilities are located in China and Germany.

Reputable customers
Dutech’s key customers include global top ATM manufacturers such as Diebold (World’s #2), Wincor Nixdorf (World’s #3). It also has a long established relationship with Liberty Safe & Security Products Inc., a leading commercial and weapon safe supplier in the US. In 2014, Dutech secured Scientific Games International (one of the global top three gaming machine suppliers) as a key customer for its intelligent terminal business.

Remarkable M&A track record
drjohnnyliu1.15bDr Johnny Liu, CEO of Dutech Holdings.
NextInsight file photo
In 2011, Dutech acquired Format, a loss-making German safe producer and previously a key competitor of Dutech in Europe. The acquisition allowed Dutech to tap on Format’s advanced technologies and expand its sales in Europe. Dutech managed to turn around Format in 2014.

In late 2014, Dutech acquired DTMT, a German electromechanical solutions provider. Complemented by DTMT’s software and electronic expertise, Dutech was able to broaden its reach into the higher value-adding intelligent terminal business.

22% sales CAGR in FY07-14; rising GPM due to low steel price
Group sales increased by a CAGR of 22% in FY07-14, driven by organic growth and M&As. Its 9M15 core net profit reached a record high of Rmb83m (FY14: Rmb69m). GPM rose from 21.8% in FY12 to 29.9% in 9M15, due to the fast declining steel price, which slumped over 50% since 2013 (raw materials, mainly steel, formed 75-80% of FY14 group cost of sales). Dutech raised its DPS to 1.5 Scts in FY15 (FY14: 1 Sct). It had Rmb112m net cash (25% of market cap) as at end-3Q15.

Historical P/E at a 65% discount to peer and downstream players
Dutech is an S-chip. Its 4.9x TTM P/E is at a 65% discount to its peer and downstream players averaging at 14.4x. Group CFO resigned in Dec 15, after six years’ service at Dutech, to pursue other interests and opportunities (company disclosure).

In Jan 16, group CEO Dr Liu Jiayan sold 650k shares that were directly registered under his name via market transactions, with an average trading price of S$0.265. Dr Liu remains a controlling shareholder of Dutech, with a 43% stake held through his private firm.

Full report here.

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