BMGREEN's 1HFY25 results came in within expectations. YoY, earnings rose on the back of improved project margins and lower input costs. However, we expect some push-back in planters' capex plans, including boiler replacements or upgrades, as their focus shifts to replanting older trees. While we maintain our forecast, we have raised our TP by 5% to RM1.36 (from RM1.30) following an upward revision in the warrants exercise price. Maintain UNDERPERFORM.

Within expectations. Its 1HFY25 net profit of RM21m met expectations at 51% and 53% of our full-year forecast and full-year consensus estimate.

YoY, its 1HFY25 revenue grew 5% mainly driven by an increased number of projects secured in its solar segment (+147% YoY), we believe, boosted by the Solar For Rakyat Incentive Scheme (solaRIS), offering rebates ranging from RM1,000 to RM4,000 per kWac for residential installations.

While the boiler manufacturing segment continued to contribute the lion's share of revenue, it faced a 15% contraction given the lower production activity and project deliveries as planters focused on replanting which aligns with our view.

Despite flattish topline, its core net profit rose steeper by 31% due to higher-margin solar projects and lower input cost in its boiler manufacturing segment specifically hot-rolled coil (-6% YoY).

QoQ, its 2QFY25 core net profit surged 62%, thanks to better performance across the board.

Outlook. The prospects for BMGREEN's boiler manufacturing segment are unfavourable as planters are holding back from replacing or upgrading boilers amidst flattish CPO prices for 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. However, we raise our TP by 5% to RM1.36 (from RM1.30) following BMGREEN's revision of its warrants exercise price to RM1.88 (from RM1.63). Our new TP is based on SoP valuation, ascribing 13x FY26F PER for its bioenergy services division (consistent with the average historical forward PER of boiler makers) and valuing at 30x FY26F PER its EPCC segment (in-line with the average historical 1-year forward PER of the solar EPCC sector). 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, (ii) its strong customer base with reputable names in the industry such as KL Kepong, Wilmar, Sime Darby, Boustead and Tradewinds, and (iii) its traction in rooftop solar EPCC jobs.

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 cost, and (iii) operations in regional markets gain traction.

Source: Kenanga Research - 25 Nov 2024