• Keep NEUTRAL and MYR0.97 TP, 7% upside and c.2% FY24F (Mar) yield. While BM Greentech is well positioned for the structural transition to renewable energy, we believe the current valuation is fair at this juncture. The stock is trading at 15x P/E, in line with its historical mean.

• Structural shift to clean energy. The launch of National Energy Transition Roadmap (NETR) marks the Government’s commitment towards transitioning to renewable energy in the years to come. This will result in businesses putting a bigger emphasis on how they can incorporate a higher share of renewable energy in their operations to align with the Government’s vision. With sustainable and green solutions as its focus, we believe BMGREEN is well positioned for this structural shift given its offerings in the bioenergy, water treatment and solar energy segments. However, we understand from management that it is taking a wait-and-see approach before leveraging on this new policy, given how NETR is still in the early stages. Therefore, we make no changes to its earnings and valuation.

• ESG score of 2.8 maintained. Based on its latest annual report, BMGREEN has demonstrated better transparency in terms of ESG disclosure. Some of the ESG aspects that have now been disclosed by the company include greenhouse gas (GHG) emissions, GHG intensity and energy consumption. Based on Figure 1, while some ESG aspects have improved over the last two years such as board independence and gender inclusivity within the board, some of its ESG progress have deteriorated over the years such as water efficiency, gender inclusivity in the workforce and training attendance rate. Therefore, we make no changes to its ESG score of 2.8 at this juncture.

• Outlook. We believe its main segment ie the bioenergy segment will continue to make up the lion’s share of future earnings given the specialised market it serves, fuelled by biomass boilers for the palm oil industry. Its water treatment segment is also expected to benefit from the palm oil industry though the contribution to the overall earnings is still minimal (9% of 1HFY24 PBT). Its solar energy segment on the other hand is expected to grow given the increased interest in green energy amidst high electricity tariffs even though this segment is expected to remain competitive given the low barrier of entry. This segment’s PBT contribution has increased to 13% in 1HFY24, from 7% in FY23. However, the overall inflationary impact as well as volatile material costs could result in the market softening which would affect all three segments.

• Keep NEUTRAL and MYR0.97 TP, based on a 16x CY24F P/E. Our TP includes a 4% ESG discount, given BMGREEN’s ESG score of 2.8. Its valuation remains fair, in line with the stock’s historical P/E mean of 15x.

Source: RHB Securities Research - 28 Dec 2023