Despite a competitive commercial laundry equipment business, we remain sanguine on BCMALL, spearheaded by the medical devices segment and newly acquired 51% stake in healthcare company Cypress Medic S/B in Feb. Valuation is attractive at 9x (7.6x ex-cash) FY19 P/E (35% below historical 14x P/E and 53% below ACE market FY17 P/E of 19.3x), supported by a robust FY17-19 EPS CAGR of 42% and net cash of RM14m or 3.3sen/share; Bullish downtrend channel breakout to spur prices towards RM0.21-0.245 levels.

Commercial laundry equipment (contributed 58% to FY17 revenue). Growth in this segment is driven by rising popularity and demand of self-service laundrettes, conversion of traditional laundry service to self-service launderettes and increasing demand from healthcare services and hospitality sectors. The successful penetration into the Borneo region has opened new markets for BCM. BCM has plans to set up 11 new Speed Queen self-service launderettes and concept stores throughout Malaysia. As at end-1QFY18, the company has set-up four outlets in Selayang, Sri Kembangan and Johor Bahru. It is currently identifying suitable locations in Klang Valley and Johor for the setting up of the remaining 7 outlets.

Medical devices (42% to revenue) industries. For this segment, demand is driven by the increasing number of healthcare providers, clinics, diagnostic imaging centres, and private and government hospitals throughout Malaysia. In addition, the securing of new products/brands also served to enhance the growth avenues in this division. In Feb-18, it was appointed as the distributor for Siemens Healthineers’ cardiac angiography system and fluoroscopy system. Overall, demand in the medical devices segment will be driven by the increasing need of a growing and ageing population, the promotion of Malaysia as a medical tourism hub and its new healthcare products segment.

New kid on the block - Healthcare products. The acquisition of a 51.03% stake in Cypress Medic in Feb would expand its reach into the distribution of healthcare products and clinical services in the retail market/pharmacies, which is complementary to its current distribution of consumable medical devices. Cypress Medic’s core business is in the trading and distribution of surgical, implants and clinical devices such as blood pressure monitor, nebuliser, thermometer, body fat monitor and sphygmomanometer for the medical devices market in Malaysia.

Bullish downtrend channel breakout. After a 10M rangebound consolidation within RM0.14-0.185 band, BCMALL’s prices recently broke out of its downtrend line and decisively above the neckline resistance of RM0.185 in high volume yesterday. We view the trend positively and are confident that the stock will advance further towards RM0.21 (50% FR) and RM0.225 (38.2% FR) before reaching to our LT objective at RM0.245 (23.6% FR). Meanwhile, key supports are located at RM0.185 and RM0.175 (76.4% FR). Cut loss at RM0.17.

Source: Hong Leong Investment Bank Research - 7 Aug 2018