In line.Boilermech's 9MFY13 results were largely in-line with our estimations. Its net profit of RM17.0m accounted for about 76.9% of our fullyear target. Annualised revenue clocked in at 97.9% of our full-year target of RM179.0m. 9MFY13 net profit had surged by 51.6% on the back of a 23.2% jump in revenue to RM131.3m. The better performance was due to higher manufacturing activities, deliveries and installation of boilers. We saw a 25.2% y-o-y increase in contribution from its manufacturing segment to RM126.7m while its PBT contribution took a 51.0% leap to RM20.8m. 9MFY13 EBIT margin improved from 14.1% last year to 17.2%, mainly due to contribution from higher-margin projects as increasing more customers order higher specifications boilers.

Earnings improve on higher margin projects. 3QFY13 net profit of RM6.3m was 20.3% higher q-o-q despite a relatively flat revenue of RM44.0m. The lower top-line was due to higher activity levels in 2QFY13 and the improvement in bottom-line was due to higher profit margin from some projects during the quarter under review as well as the impact from foreign exchange gain.

Cash rich. The company is still in net cash position after the completion of its plant purchase in November 2012. It has a total net cash of RM23.0m (net cash per share of 8.9 sen) as at end-January 2013. To recap, Boilermech bought a piece of 1.45-acre land near its Subang Jaya premises. The company does not have a fixed dividend policy. However, we are forecasting a dividend payout of 40%, which translates into 3.4% and 4.0% yield respectively for FY13f and FY14f.

Upgraded to Buy, RM1.17 FV. The company's fundamentals remain intact, backed by a solid balance sheet. Its production capacity is set to double in the next six months as it kicks off its plant expansion plan. Despite softer CPO prices, Boilermech's orderbooks were not affected. The company was able to replenish its orderbooks to over RM270m, equivalent to 1.8x its FY12 sales. It has obtained its board's approval for change its financial year end (FYE) from 30 April to 31 March. This means that FY13 results will only reflect 11 months of operations. We have fine-tuned our FY13 projections and now introduce our FY14 forecasts as well as roll over our valuation, deriving a FV of RM1.17, pegged to an average PE of 11.5x on its projected FY14 earnings. Upgrade to Buy.

Source: RHB