Results

• Boilermech Holdings Berhad reported a net profit of RM4.80m in 2QFY18 which surged 30.7% y-o-y and improved 2.9% q-o-q. Meanwhile, the Group recorded a quarterly revenue of RM55.8m, which increased by 2.4% y-o and 22.8% q-o-q. The better performance in 2QFY18 was underpinned by growth in both Bio-energy and water treatment segments. However, 6MFY18 net profit dropped by 5.9% y-o-y to RM9.5m.

• Broadly within expectations – The Group 6MFY18’s net profit was broadly within our and consensus expectation by matching 38.3% and 38% of full year earnings estimates respectively as we expect stronger 2H with the newly secured order book is expected to contribute during the period.

Comments

• Bio-energy segment performed well – Bio-energy segments in 2QFY18 recorded a higher revenue growth of 23.3% q-o-q and minor growth of 0.6% y-o-y while operating profit in Bio-energy segments elevated by 5.1% q-o-q and 26.8% y-o-y. We believe the better performance was underpinned by high order book secured by the Group in this quarter.

• Stellar 2QFY18 performance for Water treatment division – Water treatment segmental revenue in 2QFY18 also recorded a robust growth of 19.8% q-o-q and 17.8% y-o y. Besides, the operating profit posted a growth of 11.4% q-o q and 153.9% y-o-y.

• Disappointing 1HFY18 given lacklustre performance in Bio-energy segment – The Group’s 1HFY18 revenue decreased by 12.9% yoy to RM101.2m due to lower contribution from Bio- energy segment (revenue -14.9 % y-o y). Similarly, 1HFY18’s operating profit dropped by 6.4% y-o-y given Bio-energy segment’ 1HFY18 operating profit down 6.1% y-o-y. We believe the lacklustre performance was due to timing difference of recognition of new orders (normally it takes one year to deliver) and hence expects 2H to be stronger.

Earnings Outlook

• We retain our earnings forecasts for FY18 and FY19 in view that the earnings will be boosted by secured order book under Bio-energy segment.

Valuation/Recommendation

• Maintain HOLD call for Boilermech with an unchanged target price of RM0.91. Our fair value is based on 19x FY2018F PE. The PER assigned for valuation is closed to its 3- year historical average PE.

Source: JF Apex Securities Research - 23 Nov 2017