PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 25 Jan 2021, 1:29 PM


QL Resources Berhad - Acquiring Additional Stake In Boilermech

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QL (Offeror) announced that it is looking to acquire an additional 4% stake in Boilermech Holdings, at an offer price of RM0.95 per share for a total cash consideration of RM19.6m. Upon completion of the acquisition, QL’s equity interest in Boilermech will increase from 44.15% to 48.15%. Based on our estimate, the potential earnings impact of an additional 4% stake on QL is minimal at <1% of our FY21F. We are keeping our forecasts unchanged at this juncture, pending the completion of the acquisition. Our Neutral call with a DCF-derived TP of RM5.90 is maintained.

  • Details of acquisition. QL entered into an unconditional share acquisition agreement with Leong Yew Cheong (Vendor) to acquire 20.6m shares in Boilermech for RM19.6m or RM0.95 per share (3.4% premium to its 5-day VWAP). As QL currently owns 44.15% stake in Boilermech, QL is required to extend a conditional mandatory take-over offer to acquire all the shares in Boilermech to the remaining shareholders. Upon completion, QL intends to maintain Boilermech’s listing status on the Main Market of Bursa Malaysia. The acquisition is expected to complete in 1QCY21.
  • Ramping up on ESG efforts. Being one of the leading clean energy and environmental technology specialist in Malaysia, the acquisition fits into QL’s growth strategy as Environmental, Social and Governance (ESG) initiatives is one of QL’s major focuses going forward.
  • Gearing impact. As of 30th Sept 2020, QL is sitting on a net gearing position of 0.4x with cash level of RM446.5m. Should the acquisition be funded entirely via bank borrowings, it will potentially increase its net gearing to 0.41x. However, in the event of the remaining shareholders taking up the offer, we estimate that the acquisition will be valued at a total of RM273.8m, which will see QL’s net gearing rising to 0.52x.
  • Our view. Based on FY20 EPS, the offer price implies a PER of 21x. An additional 4% stake in Boilermech is estimated to increase QL’s FY21F earnings marginally by <1%. However, assuming QL acquires all the remaining shares of Boilermech, earnings accretion is estimated to be about 5% of FY21F.

Source: PublicInvest Research - 4 Dec 2020

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