Result

• Boilermech Holdings Berhad (Boilermech) posted a net profit of RM5.5m during 1QFY22 which depleted 16.3% qoq but jumped 133.1% yoy. On the same note, revenue stood at RM70.9m, which deteriorated 6.7% qoq but soared 121.4% yoy.
• Below expectation. The Group’s 3MFY22 net profit of RM5.5m was below our in-house expectation, only accounting for 18.6% of our full year forecast due to a lower contribution from Water treatment segment as well as higher cost incurred from Solar energy segment.

Comment

Movement control order bogged down overall QoQ earnings despite stellar performance from Bio-energy segment. Boilermech’s revenue and PBT dropped 6.7% qoq and 21.1% qoq respectively following sluggish performances from Water treatment and Solar energy segments as businesses were operated under restriction due to lockdown. Water treatment segmental revenue and PBT down 46.4% qoq and 98.9% qoq respectively due to lower project deliveries. Meanwhile, Solar energy segmental revenue (down 54.1% qoq) and PBT (down 105.7% qoq) following minimal project deliveries as well as higher fixed administration cost. Nevertheless, Bio-energy segment registered stellar growth as revenue and PBT increased 6.8% qoq and 6.6% respectively, thanks to higher projects deliveries arising from encouraging number of orderbook recognition.

Encouraging YoY growth resulted from lower base effect despite significant cost incurred from Solar energy segment. The Group’s revenue increased 121.4% yoy arising from higher revenue from all of its segments - Bioenergy (+132.5% yoy), Water treatment (+12.3% yoy) and Solar energy (+395.6% yoy). Meanwhile, PBT soared 108.9% yoy in view of better PBT margin from Bio-energy segment (+0.6ppts). However, PBT from Water treatment segment depleted by 5.7ppts due to high base as reversal of doubtful debt was recorded during 1QFY21. On the note, Solar energy segment PBT margin also down by 28.1ppts due to increase in manpower and administrative overhead expenses.

Tremendous demand from Solar energy segment as well as promising CPO prices tend to drive earnings. On the next quarter, management expects the project execution to remain challenging given recent surge of COVID-19 pandemic as well as more stringent controls imposed by the Government for the past few months. Nevertheless, the Group expects the business to back on track during 2HFY22 banking on mass vaccination progress carried out in the country as well as businesses operation resumption. Overall, we expect hefty orderbook secured from Solar energy segment given current massive solar demand as well as steady orderbook demand from its traditional business, i.e. Bio-energy segment as benefiting from current higher CPO price.

Earnings Outlook

We cut our FY22F and FY23F net profit forecasts by respective 17.3% and 16.4% to RM24.4m and RM27m in view of lower orderbook recognition as well as weaker margin.

Valuation/Recommendation

Maintain BUY on Boilermech with an unchanged target price of RM1.50 as we ascribe higher PE of 31.9x (28.8x previously) FY22F EPS of 4.7 sen (5.2sen previously) which is slightly higher than +2 standard deviation of its 3-year mean P/E of 29x. Higher PE assigned is to reflect its promising outlook of its solar energy business as renewable energy theme is prevalent in today’s market.

Source: JF Apex Securities Research - 23 Aug 2021

Source: JF Apex Securities Research - 23 Aug 2021