Result

• Boilermech Holdings Berhad (Boilermech) posted a net profit of RM5m during 3QFY22 which jumped 33.4% qoq but depleted 33.5% yoy. Nevertheless, revenue stood at RM97m, soaring 55.7% qoq and 49.3% yoy.

• As for 9MFY22, the Group registered a net profit of RM14.2m which was down 10.7% yoy despite encouraging revenue, +42.7% yoy. The disappointing result was dented by dismal earnings from all segments as profit margin was eroded by rising material cost despite higher revenue.

• Within expectation. The Group’s 9MFY22 net profit of RM14.2m was within our in-house expectation, accounting for 70% of our full year forecast.

Comment

• QoQ earnings was spurred by better project deliveries from Water treatment and Solar energy segments despite eroded margin from Bio-energy segment. Revenue grew 55.7% qoq during 3QFY22 as it was spurred by revenue from Bio-energy (+40.1% qoq), Water treatment (+ 8.2% qoq) and Solar energy (+637.1% qoq) following higher projects deliveries from each segment. Besides, PBT grew 76.3% qoq in view of higher earnings from Water Treatment and Solar energy segments despite lower PBT from Bioenergy segment (-2.5% qoq). Dismal earnings from Bioenergy segment was due to delivery of lower profit margin projects, increase in material costas well as higher provision for doubtful debts, thus brings Bio-energy PBT margin down by 2.7ppts qoq.

• Discouraging YoY earnings following subdued results from Bio-energy segment amid stellar revenue growth. The Group’s revenue improved 49.3% yoy, thanks to massive revenue from all segments - Bio-energy (+56.2% yoy), Water treatment (+29.3% yoy) and Solar energy (+33.4% yoy). However, PBT depleted 19.2% yoy in view of disappointing results from Bio-energy segment (PBT down 44.9% yoy) arising from delivery of lower margin project which was unable to offset the rising material cost incurred. Meanwhile, PBT for Water treatment and Solar energy segments posted stellar growths as both segmental PBT chalked up growths of 146.9% yoy and 41.3% yoy respectively underpinned by encouraging projects deliveries.

• Local market dominated sales during 9MFY22 as border is still closed. Cumulatively, for 9M result, revenue surged 42.7% yoy underpinned by all segments given encouraging projects deliveries. Meanwhile, PBT dropped 14.2% yoy due to lower earnings from all of its segments. Additionally, PBT margin was down 6ppts yoy, impacted by higher material costs due to disruption in global supply chain. Sales during 9MFY22 were still dominated by local market which accounted for 64.7% of total sales (9MFY21: 67.3%) in view of closure of international border.

• Demand from Solar Energy segment coupled with promising CPO prices tend to drive earnings albeit in softer tunes. Looking forward, management remains optimistic on the project deliveries as well as business execution for the remaining financial year amid current resumption of business 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 albeit in lower profit margin given current circumstances due to rising material cost that could prolong towards end of the year.

Earnings Outlook

• No changes on our FY22F and FY23F net profit forecasts.

Valuation/Recommendation

• Maintain BUY on Boilermech with an unchanged target price of RM1.30. Our target price is pegged at 33.3x FY22F EPS of 3.9 sen which is slightly higher than +2 standard deviation of its 3-year mean P/E of 30x. 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 - 24 Feb 2022