KUALA LUMPUR (Aug 14): An already lucrative margin at Elridge Energy Holdings Bhd (KL:ELRIDGE) may expand further amid earnings growth, Apex Securities said in initiating coverage on the biomass fuel producer.

Net margin may expand to nearly 14% in 2027 from 12% in 2024, supported by a greater proportion of premium green-certified products, the brokerage said in a note rating Elridge with a “buy” call. The report also marks the company’s first analyst coverage since its listing a year ago.

Elridge holds key certifications that facilitate market access, particularly among Japanese customers prioritising sustainability compliance, the brokerage said. “Given Japan’s robust demand, Elridge’s expansion plans in Malaysia are well-positioned to capitalise on this opportunity.”

Certified biomass fuel products typically command a 15% price premium over standard palm kernel shells. Elridge has delivered net profit margin averaging 12% over the past four quarters, significantly surpassing the single-digit industry benchmark for general manufacturers, Apex Securities noted.

Shares of Elridge, which manufactures and sells palm kernel shells and wood pellets to millers and biomass power plant operators, have surged more than 60% since the start of 2025. The stock has also more than doubled from its initial public offering (IPO) price in August 2024.

Apex Securities has a target price of 86 sen for Elridge, implying a potential upside of 25% from its current share price. At the last price of 69 sen, the company is worth close to RM1.4 billion on Bursa Malaysia.

“We believe current share price has yet to fully reflect its compelling growth prospects,” the brokerage said, and forecasts a 24% average annual growth in earnings over next three years.

Elridge also appears undervalued within the renewable energy space, Apex Securities said.

Compared to solar peers in the renewable energy space, which rely on a more volatile contract-based model, Elridge has predictable cash flows from long-term off-take agreements covering up to 40% of its annual capacity, Apex Securities said.

Further, Elridge has stable operating margins of around 12% versus the single-digit margins for solar contractors, especially those in utility-scale projects due to intense competition, the brokerage noted.