Result

• Boilermech Holdings Berhad (Boilermech) registered a net profit of RM6.5m in 1QFY20, which soared 31% yoy but depleted 37.4% qoq. Meanwhile, revenue stood at RM60.8m which was up 11.9% yoy but down 15.9% qoq. The greater performance on yoy was spurred by better after sales services in Bio-energy segment coupled with higher order sales in Water treatment segment. However, discouraging qoq performance was due to lower project delivery on both segments.

• Within expectations. The Group’s 3MFY20 net profit of RM6.5m was within ours and consensus expectation, meeting 26.7% and 29.3% of the full year net earnings forecasts respectively.

Comment

• Lower project delivery from both segments weighed down QoQ performance. Boilermech’s revenue and PBT were down 15.9% qoq and 38.1% qoq during 1QFY20 due to discouraging performance from Bio-energy and Water treatment divisions. Both revenue for Bio-energy and Water treatment segments dropped 9.5% and 44.5% respectively during the period. Meanwhile, PBT for both segments also contracted 28.5% qoq and 83.5% qoq, as witnessed by the drop in the operating profit margins, -4.2 ppts and -13.2 ppts.

• Greater after sales services from Bio-energy division lifted YoY result. The Group’s revenue increased 11.9% yoy during the quarter, thanks to higher after sales services from Bio-energy segment as well as steady project delivery sales from Water treatment segment. Revenue for Bio-energy gained 11.5% yoy while Water treatment increased 14.7% yoy. Likewise, Boilermech’s PBT also grew higher, +30.4% yoy, spurred by massive PBT growth in Water treatment division (+1930% yoy) as well as Bio energy division (+24.8% yoy).

• Export sales slightly abated. During 3MFY20, exports sales accounted for only 58.4% of Boilermech’s overall top line (vs 3MFY19: 61.2%). We believe most of the contracts secured were mainly from Indonesia.

• Outlook remains challenging. Looking forward, the Group remains cautious on its business performance for the rest of the FY20F. 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 FY20 and FY21 at RM24.3m (-8.6% yoy) and RM26.6m (+9.6% yoy) respectively.

Valuation/Recommendation

• Maintain HOLD call for Boilermech with a higher target price of RM0.65 (from RM0.59) based on a revised PE of 14x FY20 (from 12.5x previously). Target P/E ratio assigned is slightly below average sector P/E of 16.9x.

• Our neutral stance on the Group is premised on prevailing challenging outlook in plantation sector, as affected by weaker CPO price.

Source: JF Apex Securities Research - 19 Aug 2019