KUCHING: Boilermech Holdings Bhd (Boilermech) is on a robust growth path as it seeks to double its boiler-making capacity to keep up with burgeoning palm oil output from the world’s top two palm oil producing countries.
Boilermech, with a market capitalisation of RM248 million, is primarily involved in the design, manufacture and commission of biomass boilers especially for the palm oil milling industry and the repair, refurbishment and provision of engineering solutions and services for biomass boilers.
HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) analyst Kevin Wong noted yesterday that about 90 per cent of Boilermech’s topline was generated from the Malaysian and Indonesian markets, offering strong growth opportunities for the company.
“In 2012, the company acquired an adjacent manufacturing facility in Taman Perindustrian Subang which doubled its production floor space to 140,000 square feet (sq ft) from 60,000 sq ft.
“Prior to that, limited floor space had caused a production bottleneck. Its manufacturing capacity can now be ramped up to eight to 10 boilers per month (from five).
“The facility is expected to be fully operational by April. On this note, we forecast FY14 (financial year 2014 ending April) revenue and pretax profit growth of 49 per cent and 61 per cent year-on-year, respectively,” Wong revealed, adding that Boilermech’s order book stood at RM276 million as at August 2012.
The company’s growth would be supported by robust palm oil industries in Malaysia and Indonesia, strong demand for boilers with domestic demand estimated at over 150 steam boilers per year, cost-saving from utilising renewable energy and a relatively strong entry barrier as the business required technical know-how.
“Supported by the strong palm oil industry, Boilermech had consistently achieved stable earnings with improving margins.
It recorded 58 per cent growth in pretax profit with a three-year compounded annual growth rate (CAGR) from FY10 to FY12 while pretax margin had improved from nine per cent in FY08 to 15 per cent in FY12.
“As a result, return-on-investment (ROE) has been firm at about 32 per cent the last two financial years,” he said, noting that ROE for FY11 and FY12 were 32.1 per cent and 32.3 per cent) respectively.
The analyst had also reckoned that Boilermech, which listed on the Bursa Malaysia ACE Market in May 2011, would be eligible to transfer to the Main Market given its consistent earnings track record.
As stipulated in the Securities Commission’s listing regulations on a Main Market listing, one of the requirements is uninterrupted profits for three to five financial years with aggregate net income of at least RM20 million, and at least RM6 million in the most recent financial year.
“We estimate Boilermech can achieve FY13 net income of RM22.4 million and three-year aggregate net income of RM55.5 million (FY11 to FY13). A transfer to the Main Market will be a significant catalyst for Boilermech as it could increase investors’ confidence and improve brand recognition,” Wong opined. He pointed out that assuming 10 times estimated 2013 earnings per share (EPS) of 12.2 sen would imply indicative fair value of RM1.22 per share for the stock.
He noted that the stock’s valuation is attractive currently at eight times 2013 EPS with three-year EPS CAGR of 37 per cent. Given its robust growth prospects, he expected ROE to remain strong at 32 per cent for FY13.