• NEUTRAL, new MYR1.21 TP from MYR0.97, 4% downside. FY24 (Mar) earnings exceeded expectations on BM Greentech’s outperformance across all three segments. However, as the share price has rallied 40% YTD, we believe its valuation is now fair, trading at 16x, in line with its historical mean.

• FY24 core profit of MYR36.3m (+85% YoY) exceeded expectations, at 118% of our and 125% of consensus’ FY24 projections. The deviation was from higher-than-expected PBT margins across all segments. BMGREEN declared an FY24 final DPS of MY0.0225, above our forecast of MYR0.02. This translates to an FY24 core payout ratio of 30% (1.8% yield).

• Bio-energy segment PBT doubled YoY, bringing FY24 PBT to MYR33.4m (+146.5% YoY) despite lower YoY revenue growth of 11% in FY24 – mainly due to normalisation of steel costs (-10% YoY) on top of stronger project delivery with higher profit margins. As a result, FY24 PBT margin rose to 10.3% (FY23: 4.6%), above our 8.5% estimate. We expect the non-palm oil sector to lead the segment’s 3-5% YoY revenue growth for FY25-26F, as we note that most palm oil players are focusing on replanting and rehabilitation of their estates. We raise FY25-26F PBT margins to 11-12% (from 10-11%).

• Water treatment PBT saw a 3.6% uptick to MYR6.1m in FY24, in line with a 5% rise in revenue. The segment’s FY24 PBT margin was rather stable at 12.1% (FY23: 12.3%), above our 11% estimate. Despite having the highest margins, the segment only made up 14% of FY24 PBT. Coming into FY25, we believe the palm oil sector will still be the main contributor of our +4% segment revenue growth forecast. We raise FY25-26F PBT margins to 11% from 4% previously.

• Solar energy PBT was MYR8.4m in FY24 (FY23: MYR1.4m), while revenue jumped 72% YoY due to higher project delivery in the residential segment. As a result, FY24 PBT margin grew to 13.0% from 3.8% in FY23 on the back of normalisation of solar panel prices since end-CY22 (above our 11% estimate). As a result, the segment’s FY24 PBT share rose to 17% (FY23: 7%). Given the strong interest in green energy, we anticipate 15% FY25F revenue growth for the segment, but revise FY25-26F PBT margins to 11% from 4%.

• We revise up FY25-26F earnings estimates by 21-23% after imputing higher PBT margins for both the bio-energy and water treatment segments, while revising up both finance cost and income assumptions.

• Valuation. Our new MYR1.21 TP is based on a rolled-forward 16x FY25F P/E. Our TP includes a 4% ESG discount. Its current valuation is fair at 16x 2025F P/E, in line with its 16x historical mean.

Source: RHB Securities Research - 29 May 2024