BMGREEN’s 9MFY24 results met expectations. Its 9MFY24 net profit almost tripled, buoyed by lower input cost. However, its prospects are unfavourable with planters holding back from replacing or upgrading their boilers amidst flattish CPO prices. We maintain our forecasts, TP of RM0.81 and UNDERPERFORM call.

Its 9MFY24 net profit of RM22m met expectations at 81% and 75% of our full-year forecast and full-year consensus estimate, respectively.

YoY, BMGREEN’s 9MFY24 revenue rose 23% driven by: (i) boiler manufacturing segment (+20%) and water treatment segment (+34%) with higher delivery of projects as planters are still enjoying strong cash flows, and (ii) solar energy segment (+36%) with greater EPCC jobs in the residential space. Its core net profit almost tripled driven by reduced input cost, specifically, hot-rolled coil (-13% YoY).

QoQ, its 3QFY24 core net profit fell 31% due to: (i) lower boiler deliveries (-22%), (ii) foreign exchange losses, and (iii) higher provision of doubtful debts.

Outlook. The prospects for BMGREEN’s boiler manufacturing segment are unfavourable as planters hold back from replacing or upgrading their boilers amidst flattish CPO prices. They have other priorities, i.e. replanting of older trees. On a brighter note, its solar energy segment is riding on a new wave of investment in renewable energy (RE) generation assets underpinned by the government’s commitment towards RE making up 70% of total generation mix by 2050, as outlined in the National Energy Transition Roadmap (NETR).

Forecasts. Maintained.

Valuations. Consequently, we maintain our TP of RM0.81 based on an unchanged 16x PER, at a 20% premium to the historical one-year forward PER of 13x of boiler makers to reflect BMGREEN’s additional growth potential in the renewable energy space. There is no change to our TP based on ESG given 3-star rating as appraised by us (see Page 4).

Investment case. We like BMGREEN for: (i) the long-term trend of investment and upgrading of palm oil milling assets driven by the growing ESG awareness among palm oil millers, and (ii) its strong customer base with reputable names in the industry such as KL Kepong, Wilmar, Sime Darby, Boustead and Tradewinds. However, over the immediate term, amidst flattish CPO prices, planters are likely to cut back on their capex including the replacement and upgrading of boilers. Maintain UNDERPERFORM.

Risks to our call include: (i) palm oil millers restarting their capex plans on a sharp rise in CPO prices, (ii) lower input costs, and (iii) operations in regional markets gain traction.

Source: Kenanga Research - 27 Feb 2024