Boilermech seeks bigger challenges (Update)

Boilermech Holdings Bhd, as it awaits graduation to the Main Market of Bursa Malaysia, is looking at new areas of expansion in the palm oil and agriculture-based industries.

Boilermech is a biomass boiler manufacturer, serving mainly the palm oil milling industry. The bulk or 90% of the company’s earnings comes from this sector.

“Industries are moving towards sustainability and this presents opportunities for us. For instance, waste water from the palm oil industry is an increasingly hot topic, an area we can venture into. We currently provide boiler technology and energy solutions to the palm oil industry focusing on their solid waste, but today there are prospects in the liquid part of the waste as well, ” Boilermech executive director Chia Lik Khai tells StarBizWeek.

Chia says the company’s strategy is to bring in more green technology into the palm oil miling industry to improve efficiencies and reduce environmental footprints.

Thirty-four year old Chia is the son of Boilermech chairman, Dr Chia Song Kun who is more well known in the corporate circle as the founder of food and agriculture group, QL Resources Bhd. QL Resources is Boilermech’s major shareholder with a 40.7% stake. QL Resources had taken up this strategic stake prior to the stock’s listing on the ACE Market in 2011.

Boilermech’s other substantial shareholders are Leong Yew Cheong, the company’s managing director with a 15.1% stake and director Wong Wee Voo who has an interest of 8.4%.

While palm oil mill owners are Boilermech’s main customers, the company also designs and manufactures boilers for other agricultural-based processing industries, such as sugar milling and rubber-based manufacturing. Another area it has ventured into in recent years that offers growth opportunities is independent power producers (IPPs).

“With more independent power producers coming on stream in the region that supply power using renewable energy, this is an area of growth for us to diversify our business mix,” says Chia.

More excitingly, he says that the company is looking into equity investment opportunities in IPP projects. “In some of the projects which we are supplying boilers to, project developers are inviting us to be partners given our strong balance sheet. We are exploring opportunities in this area.” Boilermech has cash totalling RM74.5mil as at end-March.

From an investing perspective, Boilermech has done pretty well. The stock stands out as one of the largest on the ACE Market with a market capitalisation of RM779.16 mil at the current market price of RM3. This is almost a seven-fold increase in value from the initial public offering price of 33 sen in just three years ago. The flip side of this success is that the stock is currently trading at a price earnings ratio of 24.96 times, which may be seen as pricey. In the last one year, the stock had traded to a low of RM1.35.

In the last few years, the company has preferred “to stay as a big fish in a small pond” and used that time to quietly build up its business, says Leong. But the company is now ready for the “big sea” he adds referring to the stock’s impending transfer to the Main Board. Boilermech had applied for a transfer to the Main Market in November last year. The application has  received the Securities Commission’s approval  subject to the appointment of two additional independent directors to the company’s board. 

Leong says the transfer to the Main Market is a significant catalyst for the company as it would raise the stock’s visibility, raise investor confidence and improve branding. “We are also hoping it will attract institutional funds to take a stake that can help us grow,” says Leong.

Leong enthuses that the company has a “good problem in its hands” whereby it is currently running at almost full capacity with the 100 boilers it manufactures yearly. In 2011, it was manufacturing about 30 boilers per year. “Our current order book is in excess of RM310mil and this will keep us busy for the next one and a half years.

To prepare for expansion, the company recently announced that it is buying an industrial land of 22 acres in Klang for RM27.31mil in cash. “This seafront property is very strategic as it is near Pulau Indah and the mainland. As a lot of our business is outside the country, we have to use heavy machinery like barges. This new site on which a manufacturing plant would be built with a jetty would give us a good advantage in terms of logistics to cater for our export market,” says Leong. The plant is expected to be operational in 2016.

In terms of revenue, local sales contributes 48% while the bulk of export sales come from Indonesia which contribute 42% to revenue. The balance is derived from countries like Thailand, Philippines and Papua New Guinea, which are in the agricultural belt of the Asean region.

“We are well-positioned in Indonesia, but there is still a lot of room for growth in this huge market as demand for renewable energy picks up. Besides this, we are also scouting for geographical expansion in countries like Central America and Africa, where new areas of planting are emerging,” says Chia.

As the company enters a mature phase, Chia says the target is to grow about 15% to 20% yearly versus the average of between 20% to 30% growth it had done in the last few years. For its financial year 2014, Boilermech made a net profit of RM31mil over a revenue of RM241.9mil.

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