Maintain HOLD on Boilermech Holdings with an unchanged fair value of RM1.02/share. Our fair value is based on a FY3/19F PE of 20x, which is the group's average PE in the past four years.
We believe that there would be renewed interest in orders for boilers as the plantation industry is slowly stepping up its capex cycle. Industry CPO production is rebounding while at the same time, CPO prices have been resilient.
Boilermech is poised to benefit if plantation companies build more palm oil mills. This is due to the group's proven track record and wide range of boilers. Boilermech's market shares are estimated at 50% to 60% in Malaysia and 25% to 30% in Indonesia. It is the second largest boiler manufacturer in Indonesia.
As such, we reckon that Boilermech is on track towards recording its first net profit growth in two years. We forecast Boilermech's net profit to improve by 7.7% in FY18F mainly on the back of a 5% increase in the revenue of the bioenergy division. The unit carries out the construction and commissioning of boilers.
We think that gross profit margin would be stable at 23.8% in FY18F vs. 23.0% in FY17. Any increase in steel costs would be reflected in the pricing before Boilermech signs the contracts with its customers.
As for the water treatment and biogas unit, we have assumed that revenue would increase by 5% in FY18F. We reckon that water treatment and biogas would be growth areas in the long term due to the rising pressure that palm oil mills should be environmentally friendly.
We forecast gross DPS at 1.5 sen in FY18F, which is the same as FY17. Dividend payout is expected to be 31.1% in FY18F compared with 33.5% in FY17.
Balance sheet is healthy. Net cash is estimated to exceed RM83.5mil in FY18F vs. RM56.4mil as at end-FY17. Free cash flow is expected to be 6.6 sen per share in FY18F compared with 11.6 sen in FY17.
Source: AmInvest Research - 31 Jul 2017
http://klse.i3investor.com/blogs/aminvest/128834.jsp
