"We are neutral over this acquisition as our preliminary estimates suggest that the additional 4% stake in Boilermech would pose negligible impact to earnings.
"Furthermore, assuming the proposed acquisition of RM19.6m is fully debt funded given that QL has yet to disclose its planned proportion of borrowings against internal funds for this acquisition, the group would still remain in a comfortable net gearing of 0.25x (versus pre-acquisition’s 0.24x)," it said.
QL Resources has entered into an unconditional share agreement to acquire 20.6 million shares or 4% stake in Boilermech for RM19.6mil cash or 95 sen a share.
Upon successful completion, this would bring QL's total equity stake in the company to 48.15% and trigger a conditional mandatory take-over, subject to the 50% acceptance and approvals of any relevant parties.
QL intends to maintain the listing status of Boilermech and does not intend to acquire any remaining offer shares from the holders who have not accepted the offer.
The offer price of 95 sen a share is at a 3.4% premium to Boilermech's five-day VWAP up to and including Dec 2, 2020.
This implies about 21x price-earnings ratio (PER) to Boilermech's FY20 net profit of RM23.30, which is at a premium over the five-year historical average PER of 16x, said Kenanga.
The research house maintained "market perform" on the stock with an unchanged target price of RM6.60, in line with no changes to its earnings forecasts.
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