Boilermech Holdings -
1QFY14 Misses Target On Higher Expenses
Boilermech’s 1QFY14 results fell slightly below our forecasts, with its MYR6.3m earnings accounting for about 21% of our full-year estimate while its topline of MYR51.5m clocked in at 24% of our full-year target. The lower bottomline was due to higher operating expenses in 1QFY14. On a quarterly basis, 1QFY14’s PBT of MYR8.5m was 25% lower compared to its normalised 4QFY13 results. Boilermech is still in a net cash position, with net cash per share of 25.6 sen as at end-June. As the stock has appreciated by 73% since our upgrade in March, we are downgrading its rating from Buy to NEUTRAL, with an unchanged FV of MYR1.70, premised on a 14x P/E.
Bottomline misses target. Boilermech’s 1QFY14 results slightly missed our forecast, with its bottomline of MYR6.3m accounting for about 21% of our full-year estimate while its revenue of MYR51.5m made up 24% of our full-year target. The lower bottomline was due to higher operating expenses in 1QFY14.
Weaker q-o-q. Due to the change of financial year end (FYE) from April to March, Boilermech’s 4QFY13 results only consisted of two months’ contribution. On a normalised basis, 1QFY14’s PBT of MYR8.5m was 25% lower q-o-q compared to the preceding quarter despite its flat revenue growth, mainly due to the incidence of higher profit margins from some projects in 4QFY13. On an annual basis, we compared its 1QFY14 (March-June 2013) to 1QFY13 (April-July 2012), due to a change in the company’s FYE. Its 1QFY14 net profit of MYR6.3m was 17% higher y-o-y on the back of 23% increase y-o-y in revenue, primarily due to an increase in orders for its boilers.
Flush with cash. The company has a strong balance sheet, with a total net cash and cash equivalent of RM66m or net cash per share of 25.6 sen as at end-June 2013, compared to net cash per share of 14.4 sen as at end-April 2012. Note that Boilermech does not have a fixed dividend policy. Given its cash-rich position, we do not discount the possibility of a higher dividend payout policy in the future. Nevertheless, we are maintaining our dividend forecast of 2.5 sen for now, which translates to a dividend yield of 1.4% for FY14F.
NEUTRAL, FV maintained at MYR1.70. Going forward, we see no changes in its business model and direction, as the company will continue to focus on its forte in biomass boiler manufacturing. It is in the midst of doubling its production capacity from about five boilers per month to 8-10 boilers upon the completion of its expansion plan. The stock has appreciated by 73% since our upgrade in March. While we still like Boilermech for its solid balance sheet and positive future prospects, we are downgrading the stock from Buy to NEUTRAL. We are leaving our forecasts unchanged with a FV of MYR1.70, pegged to an unchanged P/E of 14x which implies a price earnings-to-growth ratio (PEG) of 0.6x.
Publish date: 21/08/13