BOILERM is taking full ownership of solar photovoltaic (PV) system engineering, procurement, and construction (EPC) contractor, Tera. It is buying out the remaining 35% stake for RM8.2 million in cash, translating into a forecast of financial year 2023 (FY23F) price-earnings ratio (PER) of about 9x based on Kenanga Research’s forecast. The research house has stated that “it is mildly positive that this move will strengthen its presence in the renewable energy space”. Kenanga has however, maintained its forecasts, with target price (TP) of RM0.83 and OUTPERFORM call.
BOILERM is taking the full ownership of Tera, a solar PV system EPC contractor in industrial, commercial and domestic markets. It is buying out the remaining 35% stake from the vendor, i.e. Tera’s executive director, for RM8.2 milliom cash. The deal comes with a profit guarantee of RM4.2 million over an unspecified period of time. Also, upon the completion of the transaction,
the vendor will continue to run the business as a professional manager.
The deal values Tera in its entirety at RM23.4 million. Based on Kenanga’s FY23F net profit of RM2.7 million for Tera, this translates to an acquisition PER of about 9x, which is at a discount to its valuation basis of 15x forward earnings for a similar company SAMAIDEN.
A point to note is that BOILERM first acquired a 60% in Tera in 2020 for RM2.5 million cash when the solar EPC contractor was still at its infancy.
The latest acquisition will reduce BOILERM’S net cash of RM62.7 million as at end-Sep 2022 to RM54.5 million.
Based on Kenanga’s estimates, the acquisition will boost BOILERM’s FY23-24F net profit by 3-4% (elimination of Tera’s MI, partially offset by interest income foregone on RM8.2m) which is immaterial and as such the research house has maintained its forecasts. The research house remains mildly positive on this latest move by BOILERM which will strengthen its presence in the renewable energy space.
Kenanga Research continues to like BOILERM for reasons such as the current capex upcycle of palm oil millers on the back of sustained firm CPO prices; the long-term investment and upgrading of palm oil milling assets driven by the growing ESG awareness among palm oil millers; its strong customer base with reputable names in the industry such as KL Kepong, Wilmar, Sime Darby, Boustead and Tradewinds.
TP of RM0.83 is maintained, based on 16x FY24F PER, at a 20% premium to the historical one-year forward PER of 13x of boiler makers. It should be noted that there is no change to its TP based on ESG given a 3-star rating. OUTPERFORM rating on this counter.
Risks identified include palm oil millers dialing back on their capex plans on a sharp fall in CPO prices; rising input costs; risks associated with operating in developing economies.
