SINGAPORE (March 3): CIMB Research has downgraded Dutech Holdings to “hold” with a lower target price of 55 cents from 65 cents previously.
In a Thursday report, lead analyst Roy Chen says the manufacturer of high security products was downgraded on a 41.5% fall in 4Q16 core net profit to RMB 7.5 million ($1.5 million) as newly acquired Metric Group dragged down net profitability.
This is despite FY16 core net profit coming in line with expectations, rising 8% y-o-y thanks to a strong first three quarters, which benefited from favourable forex movements and benign steel cost.
Higher raw material cost, however, is expected to weigh heavily on the group, with CIMB expecting Dutech to be a “key loser in a rising steel price environment”.
But Chen does foresee an eventual turnaround as operations at Metric becomes streamlined and synergy with its parent company gets unlocked.
“We expect core earnings per share to resume growth in FY18F, after the group fully consolidates Metric and when steel price stabilises,” says Chen.
Shares of Dutech Holdings are trading 1 cent higher at 48 cents.
