Result

• Boilermech Holdings Berhad (Boilermech) posted a net profit of RM2.7m during 4QFY22, down by 45.4% qoq and 58% yoy. Revenue stood at RM87.5m, which plunged by 9.8% qoq.

• Cumulatively, the Group registered a net profit of RM17m which tumbled 24.4% yoy amid discouraging revenue. The disappointing result was eroded by lower project deliveries from its bio-energy and solar energy segments.

• Below expectation. The Group’s 12MFY22 net profit of RM17m was below our in-house expectation, which merely accounts for 84% of our full year estimate. The subdued result was dented by soaring material costs as well as project deliveries with lower margin.

Comment

• QoQ earnings dragged by Bio-Energy and Solar Energy segments despite improvement in Water Treatment segment. Revenue plunged 9.8% qoq due to decrease in revenue from Bio-Energy (-18.2%) and Solar Energy (-13.7%) segments. Lower revenue from these segments was mainly due to lower project deliveries. Besides, dismal earnings from Bio-energy segment brought PBT margin down by 3.4ppts qoq due to surge in material cost as well as higher provision made for slow moving inventories, whilst PBT margin for Solar Energy (-15.1ppts) was dragged by delivery of projects with lower profit margin. Overall, PBT slumped by 44.2% qoq. This was despite improvement in PBT margin for Water Treatment segment (+3.5ppts) which resulted from higher project deliveries.

• Project deliveries with lower margin coupled with increase in material cost dragged YoY earnings. The Group’s revenue improved 15.2% yoy, thanks to boosted revenue from all segments - Bio-energy (+2.8% yoy), Water treatment (+52.3% yoy) and Solar energy (+56.7% yoy). Nonetheless, PBT depleted 48.7% yoy in view of disappointing results from Bio-energy segment (PBT -76.6% yoy) and Solar Energy segment (PBT -74.8%) resulted from delivery of lower margin project which was unable to offset the rising material cost incurred. Meanwhile, PBT for Water treatment segment chalked up to 184.6% yoy underpinned by encouraging projects deliveries.

• Local market dominated sales during 12MFY22 as border remained closed. Cumulatively, revenue surged 33.9% yoy thanks to encouraging projects deliveries from all three segments as compared to 12MFY21. Meanwhile, PBT dropped 23.8% yoy due to lower earnings from all of its segments. Additionally, PBT margin was down 6.1ppts yoy, impacted by higher material costs due to disruption in global supply chain. Sales during 12MFY22 were still dominated by local market which accounted for 69.6% of total sales (12MFY21: 64.6%) 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 amid transition from pandemic into endemic state. Nevertheless, the management also cautious on supply chain disruption, manpower shortages 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 and operating cost that could prolong towards end of the year.

Earnings Outlook

• We tweak down our FY23F net profit estimates by 5.4% to RM 19.2m by lowering our margin assumption to account for anticipated hike in administrative costs and project deliveries with lower margin. Also, we introduce our FY24F net earnings forecast of RM21.6m (12.5% yoy growth).

Valuation/Recommendation

• Maintain BUY with a lower target price of RM 0.98 (from RM1.30 previously) following our earnings downgrade. Our target price is pegged at 26.6x FY23F EPS of 3.7 sen which is slightly higher than +1 standard deviation of its 5-year mean P/E of 22.6x. 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 - 25 May 2022