Elridge Energy Holdings Berhad - Within expectations
Tue, 26-Aug-2025 07:34 am
by Tan Sue Wen, Ong Tze Hern • Apex Research

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ELRIDGE (0318)

Target Price (RM)

0.86

Recommendation

Buy

  • ELRIDGE’s 2QFY25 CNP stood at RM12.6m (-15.1% QoQ, +3.2% YoY), bringing 6MFY25 CNP to RM27.5m (+13.4% YoY). The result was within expectations at 48% of our FY25F forecast.

  • We expect 3Q earnings to remain resilient, supported by c.40% of its production capacity already secured under long-term contracts, complemented by sustained PKS demand from spot markets.

  • Capacity expansion remains on track, with new factories in Pasir Gudang, Kuantan, and Lahad Datu expected to lift total capacity by c.50% to c.1.44m MT/year.

  • Maintain BUY with an unchanged TP of RM0.86, based on 22x FY26F EPS of 3.9 sen and supported by a three-star ESG rating.

 

Within expectations. After adjusting for net forex loss (+RM0.2m), ELRIDGE’s 2QFY25 core net profit (CNP) came in at RM12.6m (-15.1% QoQ, +3.2% YoY), bringing 6MFY25 CNP to RM27.5m (+13.4% YoY), representing 48% of our full-year forecasts.

 

QoQ. CNP contracted 15.1%, in tandem with a 5.0% decline in revenue to RM104.1m. The weaker performance was likely due to lower contribution from the Manufacturing of PKS segment (revenue -6.8%), which we believe reflects softer PKS prices following a c.35% QoQ surge in CPO production that increased PKS supply. Finance costs rose 26.3% on higher short-term borrowings to fund working capital. These headwinds were partly cushioned by stronger contribution from Wood Pellets segment (revenue +7.4%) and higher finance income, likely from placement of IPO proceeds in interest-bearing deposits pending utilisation. Core PATMI margin contracted by 1.4%-pts to 12.1%, mainly due to unfavourable product mix given that Wood Pellet segment typically fetches lower margins.

 

YoY. CNP grew 3.2% on the back of a 0.8% revenue increase, mainly driven by stronger contribution from Wood Pellets segment (revenue +4.1%) and higher finance income from larger cash deposits of IPO proceeds.

 

Outlook. We expect ELRIDGE to deliver resilient earnings in 3Q, supported by c.40% of its ~960k MT/year production capacity secured under long term sales agreements, complemented by sustained PKS demand from spot markets. Capacity expansion remains on track, with new factories in Pasir Gudang (+240k MT/year) and Kuantan (+240k MT/year) expected to reach COD by 4QFY25, while Lahad Datu plant (+240k MT/year) is targeted for COD in 2026. This will lift total capacity by c.50% to c.1.44m MT/year once fully operational. Industry dynamics remain favourable, with the Asia Pacific PKS market projected to grow at a CAGR of 8.9% (2024–2026) and the wood pellet market at 8.6% (2024–2026). We believe ELRIDGE is well-positioned to capture rising regional demand, particularly from foreign customers who typically seek long-term, high-volume supply contracts.

 

Earnings revision. No change to our earnings forecasts.

 

Valuation & Recommendation. We maintain our BUY recommendation with an unchanged TP of RM0.86, based on 22x FY26F EPS of 3.9sen and supported by a three-star ESG rating. We like ELRIDGE for its (i) predictable earnings visibility and cash flows with c.40% of existing capacity secured under long-term contracts, (ii) ample room for capacity expansion to cater for rising demand, (iii) leadership position with c.20% market share in Malaysia, and (iv) status as a certified GGL manufacturer, which supports commands better margin.

 

Risks. (i) policy change particularly in biomass certification or export regulations, (ii) forex exposure to JPY and USD-denominated sales, and (iii) competition from regional PKS and alternative biomass suppliers.

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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