Despite facing challenges in the commercial laundry equipment sales (2QFY18 revenue -7.7% YoY), we remain sanguine on BCMALL, spearheaded by the robust medical devices segment (+139% YoY) after acquiring a 51% stake in healthcare company Cypress Medic S/B in Feb. Valuation is attractive at 8.3x (6.9x ex-cash) FY19 P/E (37% below historical 13.2x P/E since listing), supported by a resilient 7% FY19 EPS growth and net cash of RM15m or 3.6sen/share; Technically, BCM is likely to test RM0.25-0.275 levels after a brief sideways trend.

Commercial laundry equipment (contributed 46% and 57% to 1H revenue and PBT, respectively). 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. After setting up four outlets in Selayang, Sri Kembangan and Johor Bahru, BCM was in the midst of planning to open the 5th Speed Queen selfservice launderette outlet in Subang Jaya by end Sep. The Group is currently assessing options on the suitable locations to set up the remaining 6 outlets.

Medical devices (contributed 54% and 43% to 1H revenue and PBT, respectively). 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. BCM will continuously look for expansion of new portfolio of products and brands. It has recently received several purchase orders from KPJ healthcare hospitals in Jul 18 amounting to RM12.2m for the purchase of new medical imaging equipment for delivery in FY19. 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.

More contribution from Cypress Medic. 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.

Uptrend intact after trading above 200d SMA. After a 14M downward consolidation, BCMALL finally broke out the LT downtrend line and gradually building higher highs supports to hit a 52-week high of RM0.25 (1 Oct) before profit taking pullback to end at RM0.215 last Friday.

We believe taking a breather is not unusual when prices have stretched too far from its downtrend line near RM0.165, and upon the completion of the current consolidation, the stock’s uptrend may potentially resume. A strong breakout above RM0.225 (mid Bollinger band) will pave a smoother path towards RM0.25 and our LT objective at all-time high of RM0.275 (24 Oct 2016). Key supports are RM0.195-0.20. Cut loss at RM0.19.

Source: Hong Leong Investment Bank Research - 14 Oct 2018