Investment Highlights

• We recommend to SELL on Boilermech as its current share price of RM0.985 has exceeded QL Resources’ general offer (GO) of RM0.95/share. Our fair value of RM0.69/share (vs. RM0.67/share previously) is based on a FY22F PE of 15.0x instead of FY21F.

• The GO price of RM0.95/share values Boilermech at FY21F PE of 21.2x and FY22F PE of 20.7x.

• Boilermech’s 9MFY21 results were within our forecast.

• Boilermech’s net profit fell by 7.2% YoY to RM15.9mil in 9MFY21 as the completion and delivery of boilers to the customers were affected by the movement control order in 1QFY21.

• Revenue of the bioenergy division (mainly manufacturing of palm boilers) slid by 3.9% YoY to RM141.8mil in 9MFY21 due to lower delivery of projects. However, EBIT margin of the division edged up to 15.7% in 9MFY21 from 15.2% in 9MFY20. We think that Boilermech may have carried out cost-cutting measures to sustain operating profit margin in FY21F.

• EBIT of the water treatment division rose to RM2.4mil in 9MFY21 from RM1.7mil in 9MFY20 on the back of a reversal of doubtful debts of more than RM1.0mil. The division recorded an EBIT margin of 12.2% in 9MFY21 compared with 7.4% in 9MFY20.

• Local customers accounted for 67.3% of Boilermech’s revenue in 9MFY21 (9MFY20: 47.7%) while export customers made up the balance 32.7% (9MFY20: 52.3%).

• Comparing 3QFY21 against 2QFY21, Boilermech’s net profit improved by 24.7% to RM7.5mil. This was driven mainly by the completion and delivery of palm boilers.

• EBIT of the bioenergy division climbed by 13.5% QoQ to RM10.1mil in 3QFY21 while EBIT of the water treatment unit dropped by 53.8% to RM0.7mil.

Source: AmInvest Research - 25 Feb 2021