Results

• Boilermech Holdings Berhad (Boilermech) registered a net profit of RM5.0m in 3QFY18 which was improved by 4.2% qoq but down 22.5% yoy. Meanwhile, revenue increased 1.4% qoq but edged down 9.9% yoy. The better qoq performance in 3QFY18 was underpinned by steady growth in the Water Treatment segment whilst the poorer yoy performance was dragged down by the Bio-energy segment.

• Below expectations – The Group 9MFY18 net profit (both revenue and net profit dropped by 11.8% yoy and 12.7% yoy respectively) was below our and consensus expectation by only matching 58.6% and 58.1% of full year earnings estimates respectively.

Comments

• Bio-energy segment tumbled qoq and yoy. Bio-energy segment slumped in 3QFY18 after revenue slid to 1.1% qoq and 12.2% yoy. Besides that, operating profit in Bio-energy segment also decelerated by 17.4% qoq and 33.9% yoy. We believe the tepid performance by this segment was due to lower delivery of order book that resulted in lower sales order to the Group.

• Water treatment division continued to be robust in 3QFY18 – Water treatment segmental revenue in 3QFY18 improved 19% qoq and 6.3% yoy. Meanwhile, the operating profit posted a stellar growth of 190.5% qoq and 119.7% yoy. We believe sales from order book secured during 6MFY18 granted meaningful contribution to the Group.

• Tepid performance in Bio-energy segment weighed on 9MFY18 – The Group’s 9MFY18 revenue decelerated by 11.8% yoy to RM157.8m due to lower contribution from Bio energy segment as revenue down by 14.3 % yoy. Similarly, 9MFY18’s operating profit dropped by 9.6% yoy given Bio energy segment’ 9MFY18 operating profit dropped by 16.7% yoy. We believe the lacklustre performance was due to delay in delivery of contract secured (normally it takes one year to deliver) by this segment which resulted in lower earnings contribution to the Group.

Earnings Outlook

• We tweak down our earnings forecasts for FY18F and FY19F by 25.3% and 21.5% respectively in view of lower earnings generated by the Group due to delay in delivery of order book by Bio-energy segment as well as its margins.

Source: JF Apex Securities Research - 14 Feb 2018