• Keep NEUTRAL, new MYR1.85 TP from MYR1.90, 2% upside with c.1% FY24F (Mar) yield. BM Greentech’s 1QFY25 results missed expectations, due to weaker-than-expected contributions from the bio-energy segment. That said, we believe its market valuation is fair – the counter is trading at 22x CY25F P/E, similar to its solar energy peers’ 20-30x P/Es.

• 1QFY25 core profit of MYR8.2m (+28% YoY) missed expectations, at 20% and 19% of our and consensus FY25 projections. The deviation mainly came from lower-than-expected PBT from the bio-energy segment.

• BMGREEN’s bread-and-butter business – its bio-energy segment – posted a 4.5% YoY PBT decline in 1QFY25F, as revenue dropped 23% YoY. This was likely due to lower overall delivery of projects even though it chalked a higher PBT margin of 12.8% (1QFY24: 10.3%), thanks to higher-margin projects delivered. While the margin is above our FY25 assumption of 11%, we maintain forecasts but we cut our revenue growth assumption from 8% to 6% for FY25F to be conservative, and retain topline forecasts for FY26-27F. Revenue recognition will be tilted towards the coming quarters, due to a ramp-up in the delivery of projects anticipated vs the seasonally lower 1Q.

• Water treatment unit’s PBT rose 95% YoY to MYR0.4m in 1QFY25, despite a 13% YoY hike in revenue. This is due to better cost optimisation, which resulted in its PBT margin widening to 3.7% in 1QFY25 (above the 2.2% booked in 1QFY24, but lower than FY24 margin of 12.1%). Although it is below our PBT margin assumption of 11%, we maintain our estimate as we believe the lower margin was just due to timing differences. Note that, on an annual basis, this segment usually fetches PBT margins of 11-13%. That said, the water treatment unit only made up 3% of 1QFY25’s PBT. We made no changes to our forecasts for this segment.

• Solar energy PBT spiked 247% YoY to MYR4.0m in 1QFY25, while revenue jumped 111% YoY, likely due to higher sales from the commercial and industrial sub-segment on top of a reversal of provision for doubtful debts (undisclosed amount). As a result, its 1QFY25 PBT margin rose to 22% (vs 14% in 1QFY24). We believe the core PBT margin may be at a high single to low double-digit, given the increased competition within the solar energy sphere. Hence, we maintain our margin assumption of 14%. We believe its solar energy segment will continue to expand with the recent plan to acquire Plus Xnergy, potentially marking its foray to large-scale solar projects.

• We trim FY25F earnings by 3% after cutting the revenue growth assumption for its bio-energy segment. Our FY26-27F earnings remain as such.

• Keep NEUTRAL with new MYR1.85 TP based on a 24x CY25 P/E. Our TP includes a 4% ESG discount, given its ESG score of 2.8. BMGREEN’s valuation remains fair, in line with its solar peers’ 20-30x P/Es. Key risks: Raw material price fluctuations, disruptions in the supply chain and FX volatility.

Source: RHB Research - 27 Aug 2024