This article first appeared in The Edge Financial Daily on August 21, 2019
Boilermech Holdings Bhd
(Aug 20, 69 sen)
Maintain hold with a higher fair value (FV) of 76 sen: We maintain our “hold” recommendation on Boilermech Holdings Bhd with a higher FV of 76 sen per share (versus 65 sen per share previously). Our FV for Boilermech is based on an financial year ending 2020 forecast (FY20F) price-earnings (PE) of 15 times.
We have revised Boilermech’s FY20F net profit upwards by 17.7% to account for a higher-than-expected pretax profit margin for the bioenergy division. We believe that low steel costs will drive the improvement in the bioenergy division’s pretax margin in FY20F.
We have forecast a small 3% increase in the revenue of the bioenergy division (mainly manufacturing of boilers in palm oil mills) in FY20F. We think that some plantation companies in Malaysia and Indonesia may delay or reduce their capital expenditure for palm oil mills in light of the weak crude palm oil prices.
Boilermech’s bioenergy order book improved by 2.8% to RM196.1 million in FY19 from RM190.7 million in FY18. Boilermech takes about a year to complete and deliver its boilers to customers.
In its results announcement, Boilermech said that it is cautiously optimistic about its financial performance in FY20F.
Boilermech’s net profit rose by 31% year-on-year (y-o-y) to RM6.5 million in first quarter of financial year ending 2020 (1QFY20) underpinned by the bioenergy division.
Revenue of the bioenergy unit improved by 11.5% y-o-y to RM53.5 million in 1QFY20 on the back of higher project deliveries. These projects were mainly in respect of repairs and refurbishment works.
Earnings before interest and taxes (Ebit) margin of the bioenergy division climbed to 15.6% in 1QFY20 from 13.9% in 1QFY19. Export sales accounted for 58% of the bioenergy division’s revenue in 1QFY20 compared with 61% in 1QFY19. Local customers made up the balance 42% of the revenue in 1QFY20.
Ebit of the water treatment division improved to RM500,000 in 1QFY20 from RM100,000 in 1QFY19. Ebit margin of the division was 6.9% in 1QFY20 against 2% in 1QFY19.
Bioenergy accounted for 94.4% of Boilermech’s 1QFY20 Ebit while the water treatment division made up the balance 5.6%.
Boilermech’s balance sheet is healthy. Net cash stood at RM88 million as at end-June 2019 compared with RM89.2 million as at end-March. Gross borrowings amounted to RM12.7 million as at end-June 2019. — AmInvestment Bank, Aug 20