Result

• Boilermech Holdings Berhad (Boilermech) posted a net profit of RM2.9m during 1QFY23, up 4.3% qoq but down 47.7% yoy. Revenue stood at RM77.7m, which plunged by 11.2% qoq but up 9.6% yoy.

• Below expectation. The Group’s 3MFY23 net profit of RM2.9m was below our in-house expectation, which merely accounts for 15% of our full year estimate. The subdued result was dented by soaring material costs as well as project deliveries with lower margin from its Water Treatment and Solar Energy segment.

• Improvement in Bio Energy segment. Revenue for BioEnergy segment improved by 8.5% qoq and 4.5% yoy thanks to encouraging projects deliveries with better profit margin and lower provision made for slow moving inventories and doubtful debts.

• Dragged by Water Treatment segment and Solar Energy segment. Revenue for Water Treatment and Solar Energy segment decreased by 45.4 qoq 61.7% qoq respectively. This is mainly due to the lower project delivery. PBT margin for Water Treatment and Solar energy down 9ppts qoq and 0.5ppts qoq respectively , impacted by higher material costs due to disruption in global supply chain.

• Sales still dominated by Local market. Local and exports sales during 1QFY23 down by 68.5 yoy and 64.9% yoy. Sales were still dominated by local market which accounted for 64% of total sales (1QFY22: 63.2%).

Comment

• Gloomy ahead. Looking forward, the management is expected to continue to face raw material cost volatility (mainly steel), supply chain disruption and manpower shortages which could hamper the Group’s profit margin. Besides, its Bio-energy segment is highly relying on the palm oil industry. In fact, CPO prices are set to weigh down by consistent annual palm oil production surpluses and we expect its Bio-energy segment will be hurt, if materialize. To recap, Bio-energy segment is the main contributor of revenue, which provided 77.4% of the total revenue in FY2022.

Earnings Outlook

• We tweak down our FY23F and FY24F net profit estimates by 46.9% and 43.5% to RM 10.2m and RM12.2m respectively by lowering our margin assumption to account for anticipated hike in administrative costs, fluctuation of raw material prices as well as project deliveries with lower margin.

Valuation/Recommendation

• Downgrade to HOLD call from BUY with a lower target price of RM 0.70 (from RM0.98 previously) following our earnings downgrade. Our target price is pegged at 23.3x FY23F EPS of 3 sen which is slightly higher than its 5- year mean P/E of 17.4x. Lower PE assigned is to reflect anticipated project deliveries with lower margin amid unfavourable CPO prices.

Source: JF Apex Securities Research - 26 Aug 2022