Result

Boilermech Holdings Berhad (Boilermech) registered a net profit of RM3.8m during 2QFY22 which deteriorated 31.1% qoq and 37.8% yoy on the back of dismal revenue, down 12.1% qoq and 3.1% yoy.

As for 1HFY22, the Group posted a net profit and revenue of RM9.2m and RM133.2m which escalated 9.9% yoy and 38.3% yoy respectively.

Below our expectation. The Group’s 6MFY22 net profit of RM9.2m was below our in-house expectation, only accounting for 37.7% of our full year forecast resulted from losses recorded in Solar Energy segment amid subdued earnings from Water Treatment division.

Comment

MCO re-imposition dragged QoQ earnings. Boilermech’s revenue and PBT tumbled 12.1% qoq and 33.9% qoq respectively due to lower project deliveries from Bio-energy and Solar Energy segments during lockdown period despite strong performance from Water Treatment segment given its stellar orderbook recognition (Revenue and PBT soared +59.4% qoq and +6390.9% qoq). Revenue for Bio-energy and Solar Energy down 16% qoq and 46.3% qoq respectively. Besides, Bio-energy segmental PBT margin down by 3.1ppts qoq while Water Treatment segment widened its loss from RM0.1m from last quarter to RM0.5m during this period.

Disappointing YoY growth given subdued results from Solar Energy segment. The Group’s revenue eased 3.1% yoy, no thanks to dismal revenue from Solar Energy segment (-82.2% yoy) resulted from movement restriction as fewer number of projects been delivered. However, both Bio-energy and Water Treatment segments recorded sturdy growth, improving 16% yoy and 4.6% respectively arising from higher boiler’s deliveries and service performed as well as higher Water treatment project deliveries. Nevertheless, PBT margin was lower by 8ppts yoy given sluggish results from all of its segment due to lower margin on project deliveries as well as reversal of doubtful debts from Water Treatment segment.

Local market dominated sales during 1HFY21. Cumulatively, revenue of PBT soared 38.3% yoy and 9.9% respectively. Encouraging revenue was underpinned by Bio energy segment (revenue:+59.4% yoy) and Water Treatment segment (revenue:+7.4% yoy). However, Solar Energy’s revenue tumbled 52.2% yoy as business was not able to fully operate during movement restriction period. Meanwhile PBT margin down by 5.0ppts yoy following poor performance from Water Treatment segment and Solar Energy segment (PBT margin down by 7.3ppts and 32ppts respectively). Additionally, sales during 1HFY21 were still dominated by local market which accounted for 60% of total sales in view of closure of international border.

Sustainable demand from Solar Energy segment coupled with promising CPO prices tend to spur earnings. Looking forward, management remains optimistic on the project deliveries as well as business execution for the rest of the year given current higher vaccination rate coupled with business resumption activities. Nevertheless, the management also cautious on supply chain disruption as well as global commodity prices (mainly steel) that could hamper the Group’s profit margin. 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 tweak down our FY22F and FY23F net profit forecasts by respective 16.8% and 7.4% to RM20.3m and RM25m in view of lower orderbook recognition as well as weaker margin.

Valuation/Recommendation

Maintain BUY on Boilermech with a lower target price of RM1.30 (RM1.50 previously) following our earnings downgrade. Our target price now pegged at 33.3x FY22F EPS of 3.9 sen (4.7 sen previously) which is slightly higher than +2 standard deviation of its 3-year mean P/E of 28.9x. 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 - 26 Nov 2021