What’s new

• Boilermech Holdings Berhad (Boilermech) has received a conditional mandatory take-over offer from its major shareholder QL Resource Berhad (QL) after QL’s wholly-owned subsidiary QL Green Resource Sdn Bhd had entered into unconditional share acquisition agreement with Boilermech’s Managing Director and existing substantial shareholder, Mr Leong Yew Cheong to acquire his 4% equity interest.
• Triggering mandatory take-over offer. Currently, QL holds 44.15% equity interest in Boilermech. Upon completion, QL equity stake will increase to 48.15%, thus obliging to extend a conditional mandatory take-over offer to acquire all Boilermech’s remaining shares.
• Cash settlement. The proposed acquisition will be settled by cash at RM0.95/share amounting to RM19.6m. QL Resources intends to retain the listing status of Boilermech upon completion of the exercise.

Comment

• Positive deal. We are positive with the exercise given QL’s strong balance sheet which will help the Group to further expand in its clean energy businesses such as water treatment and solar energy segments. Moreover, we believe the acquisition will strengthen Boilermech’s existing presence in the industry biomass boiler given QL’s synergistic business plan as palm oil and milling activity is one of its core businesses. Meanwhile, the offer price is in line with current share price but 18.8% higher than our target price of RM0.80.
• Solar business to drive earnings. Looking forward, we deem Boilermech’s new business venture into solar energy will boost its recurrent earnings, reducing reliance on its traditional business amid cyclical business nature of the plantation sector. Nevertheless, we remain cautious on the current pandemic which will affect the Group’s overall business growth in the near term.

Earnings Outlook

• No change to our earnings forecasts for FY21F and FY22F.

Valuation/Recommendation

• Maintain HOLD for Boilermech with a higher target price of RM0.95 (RM0.80 previously) which is in line with the offer price. Our valuation is now pegged at 19.8x (16.7x previously) FY22F EPS of 4.8 sen. Target P/E ratio assigned is slightly higher than +1 standard deviation of 16.6x 3 years P/E.

Source: JF Apex Securities Research - 4 Dec 2020