Result

• Boilermech Holdings Berhad (Boilermech) registered a net profit of RM2.4m in 1QFY19, which tumbled 61.4% qoq and 49.4% yoy. Meanwhile, revenue decreased 20.2% qoq but improved 19.6% yoy. The weak performance for both qoq and yoy was bogged down by Bio-energy segment as well as Water treatment segment.

• Below expectations. 3MFY19 net profit only meets 10.5% and 10.8% of ours and consensus full year net earnings forecast respectively given lower project sales and delivery for both segments.

Comment

• Lower QoQ across the board. Both revenue and PBT tumbled 20.2% qoq and 34% qoq in 1QFY19, dented by lower revenue and PBT in both segments [Bio-energy: revenue: - 11.1% qoq, PBT: -11.8% qoq, while Water treatment: revenue: -55% qoq, PBT: -95.4% qoq]. Both segment showed uninspiring results in this quarter mainly due lower project sales as well as project delivery.

• Higher operating cost in Water treatment segment bogged down YoY performance. The Group’s net profit slumped 49.4% yoy in 1QFY19, impacted by lower margin in Water treatment segment, which tumbled 67% yoy. Lower margin in Water treatment division was due to higher operating cost incurred in this quarter. However, revenue inched up 19.6% yoy, spurred by higher revenue from both segments. [Bio-energy: +22% yoy; Water treatment: +3.8% yoy]

• Outlook remains challenging. Looking forward, the Group still feel sanguine on its business prospects for the rest of the financial year with the improvement of the project secured amid challenging business operating environment. However, we expect the Group continues to face some headwinds under the palm oil industry in relation to lower planting activities for Malaysian market, lower production yield for Indonesian market as well as environmental and social issues which affect planters’ upstream activities.

Earnings Outlook

• We retain our earnings forecasts for FY19 and FY20 as earnings contribution will pick up for the rest of the financial year, underpinned by secured order book under Bio-energy segment and Water treatment segment.

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, which is slightly below its 3-year historical average PE of 18x.

Source: JF Apex Securities Research - 24 Aug 2018