Result

• Boilermech Holdings Berhad (Boilermech) registered a net profit of RM6.5m during 4QFY21 which dropped 13.5% qoq but escalated 7.2% yoy. Meanwhile, revenue stood at RM76m, which elevated 16.9% qoq and 27% yoy.

• As for full year FY21, Boilermech posted net profit and revenue of RM22.5m and RM 237.3m which were down 3.4% yoy but up 3.1% yoy respectively. The slight tepid earnings were dented by higher cost expenses from Bio-energy segment while revenue was spurred by higher orderbook from solar energy business.

• Above expectation. The Group’s 12MFY21 net profit of RM22.5m was above our expectation, accounting for 112.5% of our full year forecast in view of contribution of its newly acquired business, solar energy business which was consolidated in May’20.

Comment

• Higher cost incurred from Bio-energy segment which dragged down QoQ earnings despite better showings from Water treatment and Solar energy segments. Boilermech’s revenue improved 16.9% qoq given higher orderbook delivery from Water treatment segment (revenue: +39.8% qoq) and Solar energy segment (revenue: +500% qoq) despite sluggish delivery from Bio-energy segment (revenue: -41.3% qoq). Nevertheless, the Group’s PBT margin was lower which was down by 4.1ppts qoq following higher project cost, manpower and administration expenses, as well as the impact from the reversal of doubtful debts which pulled down Bio-energy segment’s PBT, -78.2% qoq. However, Water treatment segment’s PBT jumped 103% qoq given better cost control, we believe.
   
• Stronger YoY growth banking on commendable contribution from Solar energy segment. The Group’s revenue and PBT soared 27% yoy and 8.9% yoy respectively, thanks to higher contribution from Solar energy segment which was acquired in May’20. Meanwhile, revenue/PBT for Bio-energy segment tumbled 30% yoy/70.1% yoy and Water treatment segment depleted 12.8% yoy/21% yoy due to lower earnings resulting from the movement restriction imposed by the Government.
   
• Solar energy segment spurred FY21 results. FY21 revenue/PBT increased 3.1% yoy/4.1% yoy following higher orderbook from Solar energy segment despite sluggish Bio energy segment revenue/PBT, down 10.4% yoy/17.8% yoy. Meanwhile, Water treatment segment’s revenue declined 13.8% yoy but PBT surged 19.9% yoy.

• Solar energy to drive earnings. Looking forward, Management remains cautious with 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 ahead 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 higher efficacy rate on 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 changes on our FY22F net profit forecast. Also, we would like to introduce our FY23F net earnings forecast of RM29.3m with 9.9% yoy growth.

Valuation/Recommendation

• Maintain BUY on Boilermech with a higher target price of RM1.50 (RM1.10 previously) as we ascribe higher PE of 28.8x (21.2x previously) FY22F EPS of 5.2 sen. Target P/E ratio assigned is slightly higher than +2 standard deviation of its 3-year mean P/E of 27.2x.

Source: JF Apex Securities Research - 27 May 2021