BMGREEN: Strategic Expansion Offsets Solar Headwinds, Buy Rating Maintained

A recent investment bank research report indicates that despite facing temporary headwinds in its residential solar segment, a prominent renewable energy company is poised for growth through strategic expansion into sustainable water solutions for data centers and a resilient commercial & industrial (C&I) solar franchise. The firm has maintained a “BUY” rating, though its target price has been adjusted downwards to RM2.58 from RM2.70.

Strategic Diversification into Data Centers

The company has successfully entered the high-growth data center sector with its inaugural river water treatment project at DayOne DC in Johor. This venture is highlighted as a significant growth catalyst, with individual project sizes estimated between RM15 million and RM20 million. The move is strategically timed to meet the increasing demand for sustainable water management solutions from data centers, particularly given the substantial water consumption of large facilities. With global hyperscalers already adopting such initiatives, the company’s early-mover advantage is expected to unlock opportunities from Johor’s sizable 5GW data center pipeline. While the water treatment segment’s contribution to FY25 revenue is projected to remain modest at 11%, it is anticipated to become a new structural growth vertical.

Solar Segment Navigates Challenges

The residential solar segment is experiencing a temporary slowdown following the expiry of the Net Energy Metering (NEM) scheme, which has effectively doubled the investment payback period to 6-7 years. To reflect this weaker demand, the investment bank has trimmed its FY26-28E earnings forecast by 4-6%.
However, the company’s broader and established C&I client base provides a robust foundation for expanding into integrated solar and battery energy storage system (BESS) solutions. These offerings are attractive due to strong cost-saving incentives, particularly through energy peak shaving. Furthermore, the large-scale utility solar segment remains a promising avenue, with projects like PXH currently delivering two Corporate Green Power Program (CGPP) projects totaling 60MW, providing revenue visibility until FY27E. The recent introduction of the LSS 5+ programme is also expected to bolster sector-wide EPCC activity, with potential contracts valued at RM6 billion. Management has also proactively secured adequate solar panels for the year, mitigating exposure to cost volatility from rising panel costs.

Outlook and Recommendation

Despite the downward revision of the target price to RM2.58 (from RM2.70 previously) to account for conservative estimates regarding residential solar demand, the investment bank reiterates its “BUY” recommendation. The recent 18% share price correction over the past month is believed to have largely priced in the near-term residential solar headwinds. The company’s fundamentals are viewed as resilient, underpinned by its strong C&I presence and strategic expansion into ESG-focused energy solutions, particularly the promising data center projects. Key risks identified include potential changes in government policies and fluctuations in raw material prices. The last traded price for the company was RM1.52.