Investment Highlights

• Maintain HOLD on Boilermech with an unchanged fair value of RM0.82/share. Our fair value for Boilermech is based on an FY19F PE of 20x.

• We believe that Boilermech's PE multiple is above its peers like CB Industrial Product Holding due to its dominant position in the palm boiler industry in Malaysia and Indonesia.

• Boilermech's FY18 net profit was within our expectations. The group has declared a final gross DPS of 1.75 sen (FY17: 1.5 sen), which translates into a yield of 2.5% for FY18. We have forecast a higher gross DPS of 2.0 sen for FY19F, which is in line with the improvement in earnings.

• We expect Boilermech's net profit to grow by 3.4% in FY19F underpinned by an increase in the order book for boilers. Earnings growth is expected to be driven mainly by the Indonesia unit. We reckon that industry spending on palm oil mills would pick up in Indonesia in FY19F.

• Boilermech's net profit declined by 10.7% YoY to RM20.6mil in FY18 due to a drop in its order book. We believe that plantation companies kept a lid on capex for palm oil mills in the past year, which resulted in fewer orders for boilers.

• Revenue of the bioenergy unit fell by 8.4% YoY to RM190.7mil in FY18 while EBIT shrank by 15.9%. EBIT margin slid from 14.8% in FY17 to 13.6% in FY18.

• Export sales accounted for 54% of Boilermech's revenue in FY18 vs. 60% in FY17. Boilermech is among the top three boiler manufacturers in Indonesia.

• EBIT of the water treatment division rose from RM3.1mil in FY17 to RM4.7mil in FY18 on the back of a higher number of contracts. EBIT margin of the unit improved from 10.6% in FY17 to 13.3% in FY18.

• Boilermech's balance sheet is clean. Net cash climbed from RM77.8mil as at end-December 2017 to RM80.5mil as at end-March 2018. The group only has gross borrowings of RM8.1mil as at end-March 2018.

Source: AmInvest Research - 24 May 2018