Result

• Boilermech Holdings Berhad (Boilermech) registered a net profit of RM5.7m during 3QFY20 which improved 12.8% qoq but depleted 2.3% yoy. Meanwhile, revenue stood at RM53.1m which was down 6% qoq but up 2% yoy.

• As for 9MFY20, the Group posted net profit and revenue of RM17.2m and RM170.3m, rising 5.6% yoy and 4.8% yoy respectively. The stellar results were underpinned by higher project delivery and improved margin from Bio-energy segment.

• Within our expectations. The Group’s 9MFY20 net profit of RM17.2m is within our estimates (71%) but below market expectation (68% of full year net earnings forecasts).

Comment

• Savings from operating expenses lifted QoQ earnings despite lower revenue. The Group’s PBT inched up 2.5% qoq but revenue slid 6% qoq. Higher earnings were due to savings from operating expenses under Bio-energy segment (PBT up +14% qoq) despite sluggish PBT from Water treatment segment (-84.7% qoq). However, subdued revenue was due to lower contribution from both segments (Bioenergy: -1.9% qoq and Water treatment: -27.8% qoq) in view of lower project delivery.

• Higher project delivery from Bio-energy division spurred YoY performance. The Group’s revenue improved 2% yoy, thanks to massive revenue from Bio-energy segment (+9.6% yoy) despite subdued revenue from Water treatment segment (-31.8% yoy) following higher sales delivery from Bio-energy division. However, PBT merely grew 0.5% yoy due to massive drop in Water treatment’s PBT margin (-6.1 ppts).

• Steady 9MFY20. Cumulatively, Boilermech’s revenue and PBT elevated by 4.8% yoy and 6% yoy respectively in view of higher contribution from Bio-energy division (revenue: +7.7% yoy; PBT: +9.8% yoy) despite disappointing Water treatment division (revenue: -10.9% yoy; PBT: -31.9% yoy).

• Local sales take a lead during 3QFY20, but exports still dominated overall top line in 9MFY20. Exports sales diminished in 3QFY20, only accounted for 42.6% of Boilermech’s revenue in 3QFY20 (vs 2QFY20: 54.8%). Overall, exports sales accounted for 52.3% in 9MFY20.
• Steady outlook. Looking forward, the Group remains positive on its business performance for the rest of the FY20F despite the challenging business operating environment. Besides, we expect the Group to sustain its business growth following current uptrend of CPO price (considerably high at RM2,500-RM2,600/tonne) which could lead to rebound in the prospects of plantation sector and improvement in planting activities for Malaysian market. Besides, the Group could be benefited from implementation of B30 mandate programme from both Malaysian and Indonesian governments.

Earnings Outlook

• We retain our earnings forecasts for FY20F and FY21F at RM24.3m (-8.6% yoy) and RM26.6m (+9.6% yoy) respectively.

Valuation/Recommendation

• Upgraded to BUY from HOLD call for Boilermech with a higher target price of RM0.67 (RM0.65 previously) as we roll over our valuation to FY21F. Our valuation is now pegged at 13x FY21F EPS of 5.16sen. Target P/E ratio assigned is slightly below its 3-years average P/E of 15.4x.

Source: JF Apex Securities Research - 24 Feb 2020