• Maintain NEUTRAL with new MYR1.90 TP from MYR1.21 and dividend yield of c.1%. We are mildly negative on BM Greentech’s plan to acquire Plus Xnergy (PXH), given its dilutive impact to EPS. As the share price has doubled YTD, we think the valuation is now fair, trading at 23x CY25F P/E – similar to BMGREEN’s solar energy peers’ 20-30x.

• Expanding the solar energy arm. BMGREEN has entered into a conditional share acquisition agreement to acquire the entire stake in PXH, a company involved in providing clean energy solutions for residential, industrial, commercial, and large-scale solar (LSS) projects. The purchase consideration of MYR110m will be satisfied via an issuance of 81.5m BMGREEN shares at MYR1.35 per share. The agreement includes a profit guarantee of at least MYR44m for a period of four years. On top of that, BMGREEN will also undertake special share issuance to QL Resources (QLG MK, NEUTRAL, TP: MYR6.36) amounting to 90.3m shares at MYR1.35/share to maintain QLG’s stake in BMGREEN of 52.57% and 1-to-4 bonus issue of up to 171.9m of the counter’s warrants.

• Time to go big. The group’s solar energy segment currently focuses on providing clean energy solutions to commercial, industrial and residential clients. Based on the meeting we had with management recently, BMGREEN takes a “wait-and-see” approach when it comes to stepping its foot into the LSS arena, considering the sheer size and competitive nature of this segment. However, with the acquisition of PXH, this should strengthen BMGREEN’s position in the clean energy business and potentially mark its first presence in the LSS segment. Since its inception, PXH has successfully installed >400MW-peak of solar photovoltaic or PV capacity.

• Inexpensive deal, but negative to EPS. We believe the deal is a bargain considering the valuation of the acquisition stands at 13x P/E (based on PXH’s FY24 earnings of MYR8.3m), ie below BMGREEN’s current valuation of 23x CY2025F. However, it is worth noting that the issuance of new shares for the acquisition (on top of additional issuances to QLG) will increase the share base by 33%. Therefore, we are mildly negative on this deal – our pro- forma calculation shows that, despite additional contributions from the acquisition of an estimated MYR11m annually, the 33% dilution from the share issuance will result in EPS being reduced by 5-6% pa.

• Maintain NEUTRAL with a higher MYR1.90 TP. We make no changes to our FY25F-27F earnings for now pending completion of this transaction, but we ascribe a higher target P/E of 24x from 16x to its rolled forward CY25F earnings – a similar target P/E ascribed to solar peer Samaiden (SAMAIDEN MK, BUY, TP: MYR1.58). We believe this is justifiable considering BMGREEN’s bigger exposure to the solar energy segment post acquisition of PXH, ie 33-36% of PBT vs 7-17% previously. Our TP takes into account an ESG discount of 4%, given its ESG score of 2.8 vs the 3.0 country median.

Source: RHB Research - 12 Jul 2024