By KEVIN WONG
Boilermech Holdings Bhd’s expansion of bio-energy segment into foreign countries has resulted in a 62.7% increase in the group’s revenue.
A research report by JF Apex Securities Bhd reveals that Boilermech’s revenue via the overseas expansion will also continue to increase in 2018 and 2019.
The overseas expansion includes projects in Thailand, Cambodia, the Philippines, Africa, Papua New Guinea and South Africa that would reduce Boilermach’s reliance on its traditional Malaysian and Indonesian markets.
“It is to believe that Boilermech will place concerted effort to execute strategies in these countries.
“At the same time, with the company’s vast experience, knowledge, leadership, technical know-how and strong business contacts within the palm oil industry, this will enable the company to grow further in the future,” the report stated.
Additionally, in March 2016, Boilermech had ventured into the water treatment business through the acquisition of a 60.2% equity interest in Teknologi Enviro-Kimia (M) Sdn Bhd (TEK), a total water management company based in Kuching, Sarawak.
This led TEK to be a stepping stone for Boilermech where it benefitted from Malaysia Palm Oil Board’s (MPOB) requirement for every palm oil mill to have a biogas system.
In conjunction with that, the research reported the company’s water treatment division was able to generate a revenue of RM29 million and pre-tax profit of RM3.1 million in the financial year 2017 (FY17).
“However, MPOB’s requirement may not be fully adopted immediately as the cost to develop the facilities is still high,” it stated.
In terms of earnings rebound, the report by JF Apex Securities stated that Boilermech’s revenue and headline net profit could head into a growth trajectory as more oil palm tree are maturing.
The growth will also be contributed by the company’s after-sales services, which would continue to brighten its businesses.
The report also revealed that Boilermech’s top line would grow 7.7% in FY18 and 10.1% for FY19, while expecting a rising bottom line by 9.7% and 10.1% in FY18 and FY19 respectively.
Boilermech’s water treatment division is also expected to continue to generate earnings and secure more contracts following increasing environ- mental concerns and growing demand for clean water.
JF Apex Securities also estimated Boilermech’s net earnings in FY18 and FY19 to grow by 9.7% and 10.1% respectively as a result of the group’s higher revenue.
“Furthermore, the company’s net profit margin is expected to remain steady around 9% to 10%, in line with its strategy of improving order- book from both bio-energy as well as water treatment segments, coupled with extending its geographical reach apart from existing traditional business markets,” the report read.
As such, JF Apex Securities has initiated coverage on Boilermech with a ‘Hold’ call and a target price of RM0.91, based on 19 times FY18 price-earnings (PE) ratio.
The PE ratio assigned for valuation is close to its three- year historical average PE.
Meanwhile, the company’s expansion plan on its land at Pulau Indah Industrial Park, Klang, has been deferred to a “more appropriate time”.
This deferment was because the company has decided to improve its cash reserve, which would be used for any business opportunities in the near future.