Boilermech seen to enjoy strong earnings ahead


Kenanga Research in a report said Boilermech was also in a sweet spot to enjoy growth from its ventures in the water treatment and biogas capture and solar energy space.

PETALING JAYA: Boilermech Holdings Bhd is set to see a post-Covid recovery in orders for its boilers from Indonesia-based oil palm plantation companies, enjoying greater pricing power due to the higher cost of the edible oil.

Kenanga Research in a report said Boilermech was also in a sweet spot to enjoy growth from its ventures in the water treatment and biogas capture and solar energy space.

“This is just as its new boiler manufacturing facility in Surabaya, which was launched in March 2021, scouts for orders from palm oil mills and food industry in the country.”

Boilermech, 52% owned by QL Resources Bhd, derives 80% of its revenue as a one-stop engineering, procurement and construction (EPC) supplier of boilers to mainly the agriculture sector, especially palm oil millers.

“The EPC segment’s workflow was interrupted during the Covid outbreak due to lockdowns and border controls which affected the group’s revenue.”

With the establishment of another production and fabrication hub, Kenanga said Boilermech should be able to better service clients in terms of speed coupled with less disruptions.

“As such, strong earnings from Indonesia can be expected over the next few years, especially as strong commodity prices have improved the investment environment in the agriculture sector, including the palm oil sector.”

The research outfit believes the company’s boiler EPC segment could see a revenue growth of 12.5% and 10% in financial year 2023 (FY23) and FY24, respectively, adding however that pre-tax profit margins are likely to stay subdued in FY23, before expanding as operating cost normalises in FY24.

The EPC segment’s pre-tax earnings is expected to grow 6.1% year-on-year to RM19.4mil in FY23, before picking up in FY24 to RM28.8mil.

Boilermech’s water treatment and biogas segment operates in Kuching, Bintulu, Miri, Sandakan, Johor and the Klang Valley, with plans to develop the business in Indonesia as well.

This segment generally treats the effluent released from palm oil mills into ponds nearby, which also produces methane gas.

As of FY21, the group’s water treatment segment posted a pre-tax profit of RM3.2mil, which grew in FY22 to RM5.2mil.

“We expect earnings growth from this segment to continue, with an estimated FY23 pre-tax profit of RM6mil and RM7.2mil for FY24,” Kenanga said.

Boilermech ventured into the solar photovoltaic EPC industry with the acquisition of TeraVA in 2020.

Kenanga expects Boilermech’s solar energy venture to contribute earnings of RM4.9mil in FY23 and RM5.8mil for FY24.

Based on the forecast of rising returns from its three business segments, Kenanga projects the company to distribute some 45% of earnings as dividends over FY23 and FY24, which is at the lower end of Boilermech’s historical trend of allocating between 40% and 50% of earnings for dividends.

Boilermech had a net cash position of RM52.9mil as at FY22. For FY22 (ended March 31), Boilermech posted a revenue of RM317.7mil and a net profit of RM16.98mil.

Based on the promising outlook, Kenanga has an “outperform” rating on Boilermech with a target price (TP) of 90 sen a share.

“Our TP is based on FY24 earnings per share of 5.6 sen at 16-times price to earnings ratio (PER), a 20% premium from the historical one-year forward PER of boiler manufacturing and integrated plantation players,” the research outfit said.

It added that the premium given to Boilermech was fair, given its accelerating expansion in Indonesia, among others.

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