ELRIDGE’s 3QFY25 CNP stood at RM13.6m (+7.8% QoQ, +27.9% YoY), bringing 9MFY25 CNP to RM40.0m (+15.5% YoY). The results made up 70% of our full-year forecast, and we deem them to be within expectations as we anticipate a stronger 4Q on the back of a higher mix of GGL-certified PKS, which commands premium export pricing.
We expect 4Q earnings to come in stronger, supported by higher spot-market sales and rising demand for GGL-certified PKS, particularly from Japan, alongside stable baseline demand under long-term contracts (c.40% of production capacity).
Following the recent share price rally, we believe near-term upside is largely priced in. We downgrade the stock to HOLD with a revised TP of RM0.97 (from RM0.86), premised on a higher 25x FY26F EPS of 3.9 sen (from 22x).
Within expectations. ELRIDGE posted a 3QFY25 core net profit (CNP) of RM13.6m (+7.8% QoQ, +27.9% YoY), bringing 9MFY25 CNP to RM40.0m (+15.5% YoY). The results made up 70% of our full-year forecast, and we deem them to be within expectations as we anticipate a stronger 4Q on the back of a higher mix of GGL-certified PKS, which commands premium export pricing.
QoQ. CNP rose 7.8%, supported by firmer contributions from PKS products (segmental revenue +5.1%) and broader margin expansion, with gross margin widening by 4.9%-pts. The margin uplift was driven primarily by lower input costs, as material costs declined 6.7%, likely reflecting softer PKS feedstock prices during the August to November high-crop season. Profitability also benefited from a richer product mix, aided by a higher proportion of PKS sales (typically generate superior margins to wood pellets) and increased sales of GGL-certified PKS, which command premium prices in export markets.
YoY/YTD. CNP rose 27.9% YoY and 15.5% YTD, driven by stronger PKS contributions and margin expansion, consistent with the factors highlighted in the QoQ analysis. Gross margin improved 5.1%-pts YoY and 1.5%-pts YTD.
Outlook. We expect ELRIDGE to continue delivering resilient earnings in 4Q, supported by c.40% of its ~960k MT/year production capacity being secured under long-term sales agreements, alongside sustained PKS demand from the spot market. The recent increase in natural gas prices should make PKS a more attractive alternative fuel for industrial users, particularly those operating biomass boilers or energy producers seeking cost-efficient substitutes. We believe this trend will continue to benefit ELRIDGE given its position as one of the largest PKS producers in Malaysia and its strong presence in the global PKS export market. Meanwhile, the new factories in Pasir Gudang (+240k MT/year) and Kuantan (+240k MT/year) are on track to reach COD by 4QFY25. Once fully operational, total capacity will increase by 50% to ~1.44m MT/year, providing ample room for further growth.
Earnings revision. No change to our earnings forecasts.
Valuation & Recommendation. We raise our target PE to 25x (from 22x) to reflect ELRIDGE’s stronger PKS demand outlook, lifting our TP to RM0.97 (from RM0.86) based on 25x FY26F EPS of 3.9 sen and a three-star ESG rating. However, after the recent rally, we believe near-term upside is largely priced in and therefore downgrade the stock to HOLD (from BUY). ELRIDGE remains fundamentally attractive given 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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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.097077 | 4.130856 |
| EUR | 4.800240 | 4.806405 |
| CNY | 0.581645 | 0.582383 |
| HKD | 0.526592 | 0.530422 |
| SGD | 3.164464 | 3.187623 |