Result

• Boilermech Holdings Berhad (Boilermech) posted a net profit of RM6.1m during last quarter of FY20, which improved 7.2% qoq but slumped 41.0% yoy. On the same note, revenue stood at RM59.8m which increased 12.7% qoq but slid 17.2% yoy.

• As for FY20, the Group registered net profit and revenue of RM23.3m and RM230.1m, tumbling 12.5% yoy and 2.0% yoy respectively. The disappointing results were dented by subdued project delivery from both Bio-energy and Water treatment divisions coupled with lower trading sales from the Water treatment division.

• Within in-house estimates. The Group’s 12MFY20 net profit of RM23.3m is within our estimate (95.9%) but slightly below market expectation (92.1% of full year net earnings forecast).

Comment

• Higher project delivery lifted QoQ earnings. Boilermech registered a higher revenue during 4QFY20 up 12.7% qoq, thanks to massive project delivery from both Bio energy and Water treatment divisions (revenue up 4.5% qoq and 71.4% qoq respectively). Besides, PBT also soared 12.9% qoq, underpinned by better margin from the Water treatment divison (+9.3ppts) despite disappointing margin posted by the Bio-energy division (-1.0ppts).

• Subdued YoY performance deteriorated by sluggish earnings from both Bio-energy and Water treatment divisions. The Group’s revenue and PBT slipped 17.2% yoy and 39.2% yoy respectively in view of lower project delivery from both segments. Revenue for Bio-energy division as well as Water treatment division slumped 17.7% yoy and 14.9% yoy respectively on the back of slumbering PBT which tumbled 37.1% yoy and 48.7% yoy respectively (led to PBT margin dropped -4.7ppts and -7.5ppts).

• Lower orderbook secured during FY20 weighed down overall FY20 earnings. Cumulatively, Boilermech’s revenue and PBT decelerated by 2.0% yoy and 11.4% yoy respectively in view of fewer contribution from Bio-energy division [revenue growth was flat at RM196.2m (vs FY19: RM196.1m); PBT:-7.3% yoy], coupled with subdued Water treatment division (revenue and PBT down 12.2% yoy and 41.0% yoy respectively).

• Exports sales took a lead during FY20 albeit losing its ground. Exports sales accounted for 50.9% of overall sales during FY20. However, contributions of exports sales were lower during this period as compared to 57.7% during FY19.

• Final dividend declared. The Group has proposed a final dividend of 1.75 sen/share for FY20 (vs FY19: 2 sen/share). This translates into a dividend yield of 3.4% based on current share price.

• Steady outlook despite easing pandemic. Looking forward, Boilermech is cautious on next quarter performance as it will be impacted by movement control order (MCO) arising from COVID-19 pandemic which halted the Group’s business operations. However, the Group remains sanguine on its business performance for full year FY21F amid current secured orderbook and stellar boiler sales enquiries during conditional and recovery MCO. Moreover, the Group is also pinning hopes on steady orderbook from its new acquired subsidiary to contribute positively to the Group’s overall earnings.

Earnings Outlook

• We cut our earnings forecasts for FY21F by 6.4% account for lower revenue impacted by COVID-19 pandemic. We also introduced FY22F earnings forecast of RM27.2m with 7.7% earnings growth.

Valuation/Recommendation

• Maintain to BUY call for Boilermech with a slightly lower target price of RM0.60 (RM0.67 previously) following our earnings downgrade. Our valuation is now pegged at 12.3x FY21F EPS of 4.9 sen. Target P/E ratio assigned is lower than -1 standard deviation of 12.9x P/E.

• We like this stock in view of: 1) current uptrend of CPO price (considerably high at RM2,400-RM2,500/tonne) which could lead to rebound in the prospects of plantation sector and improvement in planting activities for Malaysian market; 2) implementation of B20 and B30 mandate programme from both Malaysian and Indonesian governments over the medium to long term period; 3) Export duty exemption for CPO, CPKO, and RBDPKO from 1 Jul 2020 to 31 Dec 2020 which helps to boost plantation industry.

Source: JF Apex Securities Research - 26 Jun 2020