The acquisition will lift Boilermech’s net profit by about 3% to 4% for financial year 2023 and FY24, says Kenanga Research.
PETALING JAYA: Boilermech Holdings Bhd
’s full ownership of Tera Sdn Bhd is expected to solidify the group’s existence in the renewable energy (RE) space, says Kenanga Research.
Tera is principally involved in the installation of solar energy products and electrical machinery items.
Last week, Boilermech announced the acquisition of the remaining 35% stake in Tera from Leong Jit Min, the executive director managing the business of Tera, for a total cash consideration of RM8.2mil, making it the sole owner of Tera.
Based on the research house’s estimates, the acquisition will lift Boilermech’s net profit by about 3% to 4% for financial year 2023 (FY23) and FY24.
Kenanga Research has maintained its earnings forecasts for Boilermech.
"The latest acquisition, however, will reduce Boilermech’s net cash of RM62.7mil as at end-September 2022 to RM54.5mil,” the research house said in its recent report.
“We are mildly positive on this latest move by Boilermech, which will strengthen its presence in the RE space,” it noted.
Kenanga Research added that the deal, which comes with a profit guarantee of RM4.2mil over an unspecified period, values Tera at RM23.4mil.
Upon completion of the transaction, Leong will continue to run the business as a professional manager.
Kenanga Research, which maintained an “outperform” call on Boilermech, said it likes the group for the current capital expenditure (capex) upcycle of palm oil millers on the back of sustained firm crude palm oil (CPO) prices.
Additionally, the research house is in favour of Boilermech due to its long-term investment and upgrading of palm oil milling assets, driven by the growing environmental, social and governance awareness among palm oil millers.
Kenanga Research noted that Boilermech has a strong customer base with reputable names in the industry such as Kuala Lumpur Kepong Bhd, Wilmar Group, Sime Darby Bhd, Boustead Holdings Bhd and Tradewinds Group.
With that, the research house maintained a target price of 83 sen per share on Boilermech.
Among the risks to its call include palm oil millers dialling back on their capex plans on a sharp fall in CPO prices, the rise of input costs, and risks associated with operating in developing economies.
