RHB Investment Research Reports

BM Greentech - Solid Performance in the Price

Publish date: Tue, 27 Feb 2024, 11:49 AM
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An official blog in I3investor to publish research reports provided by RHB Research team.

All materials published here are prepared by RHB Investment Bank Bhd. For latest offers on RHB Invest trading products and news, please refer to: http://www.rhbinvest.com

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  • Maintain NEUTRAL and MYR0.97, 5% upside with c.2% FY24F (Mar) yield. BM Greentech’s 9MFY24 (Mar) results met our estimates, but exceeded Street expectations. Its valuation remains fair – the stock is trading at 16.2x P/E, which is close to its historical P/E mean of 16x.
  • 9MFY24 core profit of MYR22.7m (+88% YoY) is in line with our projection but above the Street estimate, at 74% and 78% of FY24F numbers. The stronger YoY performance was due to stronger earnings booked across all segments.
  • PBT of its biggest segment, bio-energy, surged by 180% YoY in 9MFY24, as revenue increased 20% YoY. This was likely due to declining operating costs as steel plate prices normalised (-10% YoY), along with increased project deliveries with better profit margins. Its 9MFY24 PBT margin rose to 8.8% (vs 3.8% in 9MFY23), below our 9.5% PBT margin assumption. Hence, we cut our FY24F margin to 8.5% while maintaining FY24-26F revenue growth at 4- 11% YoY. We understand from management that this segment’s business will continue to be mainly taken up by the palm oil sector while its non-oil palm boilers orderbook remains healthy.
  • Water treatment PBT rose 120% YoY to MYR4.0m in 9MFY24, as its topline grew 34% YoY. Given the higher delivery of higher-margin projects, its PBT margin ticked up to 11.2% in 9MFY24, from 6.8% in 9MFY23. Despite exceeding our initial FY24 margin forecast of 9%, the water treatment segment accounted for only 13% of 9MFY24's PBT. Nevertheless, we adjusted our FY24 PBT margin assumption to 11% (from 9%) with no changes to FY25-26 margin forecasts and its segmental topline.
  • Solar energy unit’s PBT was MYR5.5m in 9MFY24, from MYR0.7m in 9MFY23 while revenue jumped 36% YoY – due to higher sales from the residential segment. The segment’s 9MFY24 PBT contribution rose to 13% (from 7% in FY23) while its margin widened to 14% (vs 2.4% in 9MFY23). Stripping off the reversal of provision for doubtful debts, we believe the core PBT margin may be at a high single to low double digit, given the normalisation in solar panel prices since end-2022. We increase our FY24-26 revenue growth assumptions to 10-35% (from 10-15%) and FY24 PBT margin forecast to 11% (from 9.5%) for this segment, as we anticipate continued growing interest in green energy.
  • We tweak FY24-26F earnings by -2% to 2% as we cut FY24F earnings for the bio-energy unit, and widened FY24 margin assumptions for the water treatment and solar energy segments, as well as lifted our growth forecasts for the solar energy segment’s FY24-26F revenue.
  • Keep NEUTRAL and MYR0.97 TP, based on a 16x CY24 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 16x.

Source: RHB Research - 27 Feb 2024

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