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This article first appeared in The Edge Financial Daily on April 25, 2019

Boilermech Holdings Bhd
(April 24, 62.5 sen)
Maintain hold with a target price (TP) of 59 sen:
Boilermech Holdings announced that PT Boilermech Manufacturing Indonesia (PTBMI), which is wholly-owned by Boilermech and its subsidiary PT Boilermech, has signed an agreement with PT Maspion Industrial Estate to acquire land in East Java for 54 billion Indonesian rupiah (RM15.66 million) cash.

 

The total land acquired is 3ha. The group intends to build a new manufacturing plant which mainly caters for the fabrication of palm oil mill boilers.

The proposed acquisition is expected to be completed in the third quarter (3Q) of 2019.

Following the announcement, we reckon the acquisition will improve the bioenergy division following higher demand for boilers in the Indonesian market as compared with the Malaysian market.

Upon completion of the new plant, the order book will improve as the new plant to cater for new orders from the Indonesian market will better the group’s future earnings.

As year to date, the group has RM16 million cash. The group did [not] propose any borrowing and will buy the land using internal funds. This is in line with the group’s strategic plan in conserving cash, which be used for any potential acquisition in either Malaysia or Indonesia should the opportunity arise.

No change to our core earnings estimates of RM21.8 million (+6% year-on-year [y-o-y]) for forecasted financial year 2019 (FY19F), RM24.2 million (+11.1% y-o-y) for FY20F and RM26.5 million for FY21F (+9.6% y-o-y).

Maintain “hold” call for Boilermech with a TP of 59 sen. Our valuation is pegged at 12.5 times FY20F price-earnings ratio (PER) to better reflect the prevailing challenging outlook in the plantation sector as affected by weaker crude palm oil price. Our valuation is slightly lower than its mean PER of 17.6 times. — JF Apex Securities, April 24

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