Result

• Boilermech Holdings Berhad (Boilermech)’s net profit soared 24.7% qoq and 32.9% yoy during 3QFY21. On the same note, revenue stood at RM65m, which elevated 1.0% qoq and 22.5% yoy.

• As for 9MFY21, Boilermech registered net profit and revenue of RM17.2m and RM 170.3m which were down 7.2% yoy and 5.3% yoy respectively. Dismal result was dented by Covid-19 pandemic which halted overall business operation thus leading to slower orderbook deliveries.

• Within expectation. The Group’s 9MFY21 net profit of RM15.9m was within our expectation, accounting for 79.5% of our full year forecast in view of better performance in Water treatment’s earnings.

Comment

• Stellar result from Bio-energy segment boosted QoQ performance. Boilermech’s revenue/PBT increased 1.0% qoq/4.8% qoq arising from better orderbook deliveries from Bio-energy segment as its revenue and PBT inched up 2.9% qoq and 13.1% qoq respectively. Also, Bio-energy’s PBT margin improved by 1.6ppts qoq given better cost control, we believe. Nevertheless, revenue/PBT from Water treatment segment tumbled 12.5% qoq/59.6% qoq during this period.

• Encouraging YoY growth banking on commendable results from both segments. The Group’s revenue jumped 22.5% yoy on the back of massive PBT which soared 39.8% yoy, thanks to encouraging performance from Bio-energy and Water treatment segments. Bio-energy segment revenue and PBT lifted 24.7 % yoy and 34.6% yoy respectively. We deem the stellar result from this segment was lifted up by its new solar energy business which was acquired in May’20. Meanwhile, revenue/PBT for Water treatment segment improved 6.8% yoy/334.1% yoy given better orderbook deliveries.

• Better earnings from Water treatment division during 9MFY21. Cumulatively, 9MFY21’s revenue tumbled 5.3% yoy in view of slower revenue from Bio-energy segment (-3.9% yoy) and Water treatment segment (-14.3% yoy). However, PBT iched up 2.3% yoy arising from higher PBT from Water treatment segment (+56.8% yoy) despite slumbering Bio energy segment (-1.0% yoy). Additionally, exports sales dropped by 32.7% during 9MFY21 as compared to 52.3% in 9MFY20 resulting from impact of Covid-19 pandemic.

• Solar energy to boost earnings. Looking forward, Management remains cautious on the resurgence of Covid-19 cases as well as extension of movement control order that might halt the project execution. Nevertheless, Boilermech believes to deliver satisfactory results for the rest of the year underpinned by hefty demand from solar energy business as well as positive outlook of CPO price. Overall, we believe its new business venture into solar energy will boost its recurring earnings in the near term and thus reducing reliance on its traditional businesses. Moreover, we are positive on its business outlook upon successful of mass vaccination that could help to ease current business restriction pursuant to Covid-19 outbreak as well as benefiting from current spike in CPO prices.

Earnings Outlook

• No change to our earnings forecasts for FY21F and FY22F.

Valuation/Recommendation

• Upgraded to BUY from Hold for Boilermech with a higher target price of RM1.10 (RM0.95 previously) as we assign higher PE of 21.2x (19.8x previously) FY22F EPS of 5.2 sen. Target P/E ratio assigned is slightly lower than +2 standard deviation of 3-year P/E of 22.1x.

Source: JF Apex Securities Research - 24 Feb 2021