Crude palm oil (CPO) prices have been rising strongly, yet the appetite is clearly not there for plantation stocks.

None of the stocks have budged despite many of them offering decent dividend yields presently.

As of to date, CPO prices have now reached RM4,549.50, meaning it is up some 62% on a one year basis.

The high CPO price coupled with the relaxation of the MCO will eventually see more plantation activities pick up.

It is a known fact that the plantation sector has been bogged down by labour shortage due to the pandemic.

With the economy now reopening and in view of the high vaccination rate among workers, more palm oil related boiler activities are expected to pick up substantially to catch up with its outstanding backlog.

It could only be matter of time before plantation stocks start reacting.

A company that will benefit from more plantation activities is Boilermech Holdings Bhd.

Since hitting its high of RM1.56 in April this year, the stock has since corrected substantially and is now trading at the RM1 to RM1.05 range.

Listed in 2011, Boilermech started off as a biomass boiler design and manufacturing company. This meant that initially, its fortunes were very much tied to the plantation business.

Today however, Boilermech is no longer just a boiler company, as it has grown and diversified to become a renewable energy and clean water system provider.

This can be seen its in FY21 results where the solar and water treatment division has started to contribute to profits more prominently.

 In 2016, Boilermech ventured into the water treatment business by acquiring a 60.23% stake Teknologi Enviro-Kimia (M) Sdn Bhd (TEK).

In 2020, Boilermech also embarked into the solar energy sector through the acquisition of a 60% stake in Tera VA Sdn Bhd, a growing solar photovoltaic company.

Boilermech = a mini QL Resources?

Now what makes Boilermech that much more attractive is its single largest shareholder – QL Resources Bhd.

QL Resources has always been known for its excellent management and phenomenal growth especially in the early 2000s.

Today, QL Resources with its market cap of RM13.19bil bil is viewed more as a matured business. It is the master franchisee for convenient store chain Family Mart, besides its other core businesses of producing marine products, integrated lifestock farming, palm oil & milling and consumer food.

Meanwhile, Boilermech could be just starting, especially since it has two new businesses of solar and clean water.

Last Dec, QL Resources launched a takeover of Boilermech at a price of 95 sen per share.

The takeover offer came after QL Resources entered into an unconditional share acquisition agreement with Boilermech managing director Leong Yew Cheong to buy 20.64 million shares, representing a 4% equity stake, for RM19.61 million or 95 sen per share.

Since then, QL Resources owns 50.53% of Boilermech via QL Green Resources Sdn Bhd.

This puts Dr Chia Song Kun, the founder and managing director of QL Resources as the single largest shareholder of Boilermech via his stake in QL Green Resources Sdn Bhd.

In Boilermech, Chia was appointed chairman, while his son Chia Lik Khai 42, has been made joint managing director together with Leong Yew Cheong.

If we were to look at Lik Khai’s past experience, it is clear that his expertise are in the renewable energy segment.

This is also likely the direction Boilermech is looking to take.

Lik Khai has an MBA from Wharton Business School, University of Pennsylvania, United States, where he focused on Entrepreneurship and Corporate Finance.

He also received his Master of Science and Bachelor of Science in Electrical Engineering from University of Michigan, Ann Arbor, United States.

His graduate studies specialised in Communication Integrated Circuits design and advanced semiconductor.

Prior to 2009, he was with McKinsey & Company in Shanghai, where he was an affiliate of the Global Energy & Materials and High-Tech practice.

During his tenure there, he focused on serving global clients in renewable energy, consumer products and high-tech sectors on strategy, mergers and acquisitions as well as sales and marketing.

Growth catalysts – solid profit contribution from the solar and water divisions

Now, since Boilermech acquired the water treatment and solar business, its revenue is NO LONGER just from the boiler business.

As an example, for its year ended March 31, 2020, profit before tax wise, the boiler business contributed 91.7% while the water division delivered 8.3%. There was none yet from the solar business.

For its year ended March 31, 2021, the boiler business contributed 72.4%, water contributed 9.5% while the solar division contributed 18.1% to profits.

These decent results were achieved during a pandemic year.

Indications by management are that both these divisions are expected to see stronger growth in the coming year, just by working off its existing orderbook.

On its core boiler business, this division is also expected to improve, and it can further ride on securing some jobs from QL’s own sizeable palm oil business.

For its first quarter to June 30, 2021, net profit more than doubled from RM2.3mil to RM5.46mil while revenue also more than doubled from RM32mil to RM70.91mil.

The company is currently in a net cash position of RM80mil.

In its prospects, management said that all in all, provided the COVID-19 situation doesn’t further deteriorate, the outstanding order book coupled with positive outlook of CPO price and solar demand, the board remains confident in delivering reasonable and satisfactory results for the financial year.

Valuations-wise, Boilermech is trading at a reasonable price earnings ratio (PER) of around 24x whereas other solar companies such as Solarvest and Samaiden are trading at more than 50x PE.

Meanwhile, one of Boilermech’s directors, Adrian Chair Yong Huang has been slowly accumulating shares of Boilermech since March 22, 2021.

Adrian is an independent non-executive director of the company.

While the amount is small, at roughly 410,000 shares as of July 19, 2021, it does perhaps signify some value he sees in the company. 

Dividends-wise, Boilermech regularly rewards its shareholders. In the last three years, it has been paying out between 1.75 sen to 2 sen.

For those interested, Boilermech’s final dividend of 1.75 sen is coming up, and will go ex on Sep 17.

The payment date will be Oct 6.