This article first appeared in The Edge Financial Daily on February 15, 2018

Boilermech Holdings Bhd
(Feb 14, 77 sen)
Maintain hold with a lower target price of 82 sen: Boilermech Holdings Bhd registered a net profit of RM5 million for the third quarter of financial year 2018 (3QFY18), which improved by 4.2% quarter-to-quarter (q-o-q) but down 22.5% year-on-year (y-o-y). Meanwhile, revenue increased 1.4% q-o-q but edged down 9.9% y-o-y. The better q-o-q performance in 3QFY18 was underpinned by steady growth in the water treatment segment, while the poorer y-o-y performance was dragged down by the bioenergy segment.

The group’s nine months of financial year 2018 (9MFY18) net profit (both revenue and net profit dropped by 11.8% y-o-y and 12.7% y-o-y respectively) was below our and consensus expectations by only matching 58.6% and 58.1% of full-year earnings estimates respectively. 

The bioenergy segment tumbled q-o-q and y-o-y, slumping in 3QFY18 after revenue slid 1.1% q-o-q and 12.2% y-o-y. Besides that, operating profit of the bioenergy segment also decelerated by 17.4% q-o-q and 33.9% y-o-y. We believe the tepid performance by this segment was due to lower delivery of the order book that resulted in lower sales orders to the group.  

The water treatment division continued to be robust in 3QFY18 — water treatment segmental revenue in 3QFY18 improved 19% q-o-q and 6.3% y-o-y. Meanwhile, its operating profit posted a stellar growth of 190.5% q-o-q and 119.7% y-o-y. We believe sales from the order book secured during 6MFY18 granted meaningful contributions to the group.

The group’s 9MFY18 revenue decelerated by 11.8% y-o-y to RM157.8 million due to a lower contribution from the bioenergy segment as revenue was down by 14.3 % y-o-y. Similarly, 9MFY18’s operating profit dropped by 9.6% y-o-y given the bioenergy segment’s 9MFY18 operating profit dropped by 16.7% y-o-y. We believe the lacklustre performance was due to a delay in delivery of contracts secured (normally it takes one year to deliver) by this segment, which resulted in lower earnings contributions to the group. — JF Apex Securities Bhd, Feb 14