Result

• Boilermech Holdings Berhad (Boilermech)’s 3QFY19 net profit was RM5.8m, which increased 5.3% qoq and 16.1% yoy. However, revenue tumbled 7.5% qoq and 8.1% yoy.

• As for 9MFY19, the Groups’ revenue and net profit improved 3.0% yoy and 12.3% yoy respectively. The encouraging yoy growth was underpinned by better performance in both Bio energy and Water treatment segments.

• Within expectations. The Group’s 9MFY19 net profit of RM16.3m was within ours and consensus expectation, meeting 74.8% and 75.8% of the full year net earnings forecasts respectively.

Comment

• Lower sales order book in Bio-energy and Water treatment segments bogged down QoQ performance. The Group’s revenue and PBT deteriorated by 7.5% qoq and 6.5% qoq respectively in 3QFY19. The uninspiring result was due to lower order book secured in both segments. Bio energy divisions’ revenue and PBT contracted 8.7% qoq and 0.5% qoq respectively while Water treatment division’s revenue and PBT tumbled 1.6% qoq and 39.1% qoq respectively.

• Delay in project delivery from Bio-energy segment weighed on the Group’s yoy revenue despite better margin. The Group’s revenue slumped 8.1% yoy due to lower revenue in Bio-energy division (-12.3%yoy). However, revenue in Water treatment division improved 17.2% yoy, buoyed by higher project sales and delivery in this division. Besides, the Group’s PBT surged 5.8% yoy/+1.9pppts, thanks to better margin in Bio-energy segment (+12.3% yoy/+4.8ppts).

• Robust 9MFY19. Cumulatively, Boilermech’s revenue improved 3.0% yoy to RM162.5m mainly underpinned by higher revenue in Water treatment segment (+21.3% yoy) and minor revenue in Bio-energy segment (+0.2% yoy). Besides, the Group’s operating profit margin expanded +1.1 ppts due to better margin in both Bio-energy and Water treatment segments (Bio-energy: +1.8ppts; Water treatment: +3.3ppts.)

• Export sales dominated overall revenue. Exports sales accounted for 59.9% of Boilermech’s revenue in 9MFY19 (vs 9MFY18: 53.6%). We believe most of the contracts secured mainly from Indonesia.

• Outlook remains challenging. Looking forward, the Group remains cautious on its business performance following lower order book secured in this financial year. Besides, 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 at RM21.8m and RM24.2m respectively.

Valuation/Recommendation

• Maintain HOLD call for Boilermech with a lower target price of RM0.63 (from RM0.68) as we rolled over our valuation to FY20. Our valuation is now peg at 13.5x FY20F PER (from 16x) to better reflect prevailing challenging outlook in plantation sector as affected by weaker CPO price. Our valuation is slightly lower than its mean PE of 17.6x.

Source: JF Apex Securities Research - 22 Feb 2019