Result

• Boilermech Holdings Berhad (Boilermech) registered a net profit of RM6.1m in 4QFY18 which improved 22% qoq but down 6.9% yoy. Meanwhile, revenue increased 20.3% qoq and 17% yoy.

• For 12MFY18, the Group attained a lower revenue and net profit of 4.8% yoy and 11% yoy respectively. The performance was dented by accounting treatment of foreign currency differences in Bio-energy segment.

• 12MFY18 net earnings above our estimate but within market expectation. The Group registered a net profit of RM20.6m in 12MFY18 which accounts for 118.4% of our full year estimate and 104% of market forecast. The upbeat performance was due to strong demand in Bio-energy product following a recovery in palm oil industry as well as project secured under Water treatment division.

Comments

• Stronger QoQ. Both revenue and PBT improved 20.3% qoq and 41.4% qoq respectively in 4QFY18. The stellar performance was underpinned by higher growths in both Bio energy segment (revenue: +11.5%; PBT: +39.1%) and Water Treatment segment (revenue: +73%; PBT: +120.7%), thanks to higher order book contribution secured within the financial year as well as increase in project sales.

• Lower margin from Bio-energy segment weighed on YoY performance. The Group registered a lower PBT margin by 2.7 ppts, impacted by lower margin in Bio-energy segment which tumbled 14.2% yoy. The lower margin was due to accounting treatment of foreign currency differences. However, revenue increased 17% yoy due to higher number of order book secured coupled with increase of new project within the financial year from both segments.

• Cumulatively, 12MFY18 dragged down by Bio-energy segment. For the full year, the Groups’ revenue and PBT decelerated 4.8% yoy and 6.7% yoy respectively, no thanks to Bio energy segment performance. Bio-energy’s revenue and PBT dropped 8.4% yoy and 15.9% yoy respectively on the back of lower order book secured during FY18 as compared to FY17.

• Higher dividend declared. The Group has declared a higher single-tier dividend of 1.75 sen per share against 1.5sen/share in FY17.

• Looking forward, we expect the Group continues to face some headwinds in relation to palm oil industry such as lower planting activities for Malaysian market while environmental and social issues coupled with lower production yield for its Indonesian market.

Earnings Outlook

• We lift our earnings forecasts for FY19F and FY20F by 8.7% and 15.7% respectively in view of higher-than expected margins as well as higher order book secured by both segments.

Valuation/Recommendation

• Maintained HOLD call for Boilermech with an unchanged target price of RM0.77 as we peg our valuation at PE of 17.6x FY2019F EPS (from PE of 19x), which is below its 3-year historical average PE of 19x.

Source: JF Apex Securities Research - 24 May 2018