• Keep NEUTRAL and MYR1.85 TP, 2% downside. BM Greentech’s 1HFY25 (Mar) results met expectations, driven by improved QoQ bio-energy performance and strong contribution from its solar segment as the group continues to benefit from Malaysia’s transition to renewable energy (RE). However, we view its market valuation as fair—the counter is trading at 23x CY25F P/E, similar to its solar energy peers’ 20-30x P/E. This report marks the transfer of coverage to Miza Izaimi and Sean Lim.

• Within expectations. 1HFY25 core earnings of MYR21.6m (+37.7% YoY) were in line with expectations, meeting 53% and 55% of our and Street fullyear forecast. No dividend was declared for the quarter.

• Results review. 2QFY25 revenue rose to MYR137.1m (+48.8% QoQ, +15.8% YoY), driven by stronger solar energy contribution, which offset the YoY weaker bio-energy segment impacted by lower production activity and fewer boiler project deliveries. Despite the 6.8% YoY revenue drop, the bio-energy division posted a 46.5% YoY increase in PBT to MYR18.7m thanks to an improved margin. Sequentially, the unit saw a 33.1% revenue increase recovering from the seasonal dip in 1Q. 1HFY25 core net profit increased 37.7% YoY to MYR21.6m on account of a higher topline (+4.6% YoY) and widened margins from the bio-energy and solar segments which cushioned the higher effective tax rate or ETR and increased expenses from the water treatment unit.

• Potential upside for its solar arm supported by the recent acquisition of Plus Xnergy Holdings. This positions BMGREEN to capitalise on large-scale solar (LSS) projects, particularly under the upcoming LSS5 programme, which offers 2GW of EPCC opportunities. Additionally, the Corporate Renewable Energy Supply Scheme and Malaysia’s National Energy Transition Roadmap are expected to drive further growth in this segment. Reflecting this momentum, the division’s 1HFY25 PBT surged over threefold to MYR8.9m (1HFY24: MYR2.9m), underpinned by robust demand from commercial and industrial clients. Meanwhile, for its bio-energy segment, we expect topline growth to remain “flat to modest”, reflecting subdued demand as guided by management. However, a healthy margin is likely to buoy earnings.

• Keep NEUTRAL. We maintain our estimates and TP of MYR1.85 based on a 24x CY25F P/E. Our TP includes a 4% ESG discount, reflecting its ESG score of 2.8 – below the country median. While we like the company for its position in the growing RE space, we deem BMGREEN’s valuation to be fair, in line with its solar peers which are trading at 20-30x P/E.

• Key risks:Raw material price fluctuations, disruptions in the supply chain and FX volatility.

Source: RHB Securities Research - 25 Nov 2024