• 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