Boilermech on track towards first net profit growth in two years as palm oil mills ramp up

KUCHING: Boilermech Holdings Bhd ( Boilermech) is on track towards recording its first net profit growth in the past two years.

According to AmInvestment Bank Bhd (AmInvestment Bank), Boilermech is poised to benefit if plantation companies build more palm oil mills due to the group’s proven track record and wide range of boilers.

AmInvestment Bank believed that there would be renewed interest in orders for boilers as the plantation industry is slowly stepping up Boilermech’s capital expenditure (capex) cycle.

The research firm noted that industry crude palm oil ( CPO) production is rebounding while at the same time, CPO prices have been resilient.

“As such, we reckon that Boilermech is on track towards recording its first net profit growth in two years,” AmInvestment Bank said.

The research firm forecasted Boilermech’s net profit to improve by 7.7 per cent in financial year 2018 forecast ( FY18F) mainly on the back of a five per cent increase in the revenue of the bioenergy division.

It noted that the unit carries out the construction and commissioning of boilers.

“We think that gross profit margin would be stable at 23.8 per cent in FY18F versus 23 per cent in FY17,” the research firm said.

“Any increase in steel costs would be reflected in the pricing before Boilermech signs the contracts with its customers.”

As for the water treatment and biogas unit, AmInvestment Bank assumed that revenue would increase by five per cent in FY18F.

The research firm reckoned that water treatment and biogas would be growth areas in the long term due to the rising pressure that palm oil mills should be environmentally friendly.

On dividends, AmInvestment Bank predicted Boilermech’s gross dividend per share ( DPS) to be at 1.5 sen in FY18F, -- the same as FY17.

“Dividend payout is expected to be 31.1 per cent in FY18F compared with 33.5 per cent in FY17,” it said.

Meanwhile, AmInvestment affirmed that Boilermech’s balance sheet is healthy, with its net cash estimated by the research firm to exceed RM83.5 million in FY18F versus RM56.4 million as at endFY17.

“Free cash flow is expected to be 6.6 sen per share in FY18F compared with 11.6 sen in FY17,” the research firm said.

All in, AmInvestment Bank maintained ‘hold’ on Boilermech with an unchanged fair value of RM1.02 per share.

The research firm forecasted Boilermech’s net profit to improve by 7.7 per cent in financial year 2018 forecast (FY18F) mainly on the back of a five per cent increase in the revenue of the bioenergy division.