Result

• Boilermech Holdings Berhad (Boilermech) registered a net profit of RM2.3m during 1QFY21, depleting 61.5% qoq and 63.8% yoy on the back of sluggish revenue which tumbled 46.5% qoq and 47.3% yoy.
   
• Substantially below our expectation. The Group’s 3MFY21 net profit of RM2.3m only accounts for 9.1% from our full year forecast in view of lower project deliveries from both Bio-energy and Water treatment segments arising from movement control order (MCO) imposed by government due to COVID-19 pandemic.

Comment

• MCO dragged down QoQ earnings…. Boilermech’s revenue and PBT down 46.5% qoq and 58.9% qoq respectively due to lower project deliveries from both segments during MCO period. Revenue from Bio-energy and Water treatment division slid 43.7% qoq and 58.4% qoq respectively. Moreover, PBT for Bio-energy and Watertreatment also dropped 55.6% qoq and 78.1% qoq respectively and led to PBT margin from both divisions down 3.1 ppts and 4.5 ppt respectively.
   
•  …..as well as YoY. On the same note, revenue and PBT on yearly basis also bogged down by lockdown during MCO period which led to limited business operation. The Group’s revenue diminished 47.3% yoy as revenue for Bio-energy and Water treatment divisions slumped 48.8% yoy and 36.1% yoy respectively. Besides, the Group’s PBT decelerated 59.6% yoy following disappointing PBT in Bio-energy segment (-60.9% yoy) as well as Water treatment segment (-31.8% yoy).
   
• Disappointing export sales during 1QFY21. Local sales take a lead of total sales during this period which accounted for 58.4% of overall sales. Moreover, exports sales were disappointing, down 52.5% qoq and 62.5% yoy respectively.
   
• Venturing into renewable energy industry. On 22 May 2020, Boilermech acquired 60% stake in TERA VA Sdn Bhd (TERA) from Otofin Power Sdn Bhd (OPSB) totalling RM2.5m cash. TERA was establish in 2011 and principally engaged in the business of installation of solar green power energy products and electrical machineries products. The transaction has been completed and TERA has become a subsidiary of Boilermech. We are optimistic about the acquisition as it was in line with Group’s mission as a sustainable environmental solutions provider. We believe it could contribute to the Group’s earnings going forward in view of TERA’s strong establishment and experience in projects secured.
   
• Hoping for promising outlook. Looking forward, Boilermech is sanguine on its business performance, pinning hope on its current orderbook secured, rebound in CPO prices as well as greater contribution from its newly acquired solar energy business. However, we deem current rebound in CPO prices could be temporary due to rising concern on COVID19’s new waves as well as higher outputs from producing countries which led to lower CPO prices. Moreover, we expect contribution from new acquired business will only be reflected in FY22F onwards due to current pandemic situation.

Earnings Outlook

• We cut our earnings forecasts for FY21F and FY22F by 25% and 8.1% respectively account for lower revenue and eroded margin impacted by COVID-19 pandemic.

Valuation/Recommendation

• Downgraded to HOLD from BUY call for Boilermech with a slightly lower target price of RM0.58 (RM0.60 previously) following our earnings downgrade. Our valuation is now pegged at 12.1x FY22F EPS of 4.8 sen. Target P/E ratio assigned is lower than mean PE of 13.9x P/E.

Source: JF Apex Securities Research - 13 Aug 2020