Investment Highlights

• We initiate coverage on Kumpulan Powernet (KPower) with a BUY call and a fair value of RM4.16/share based on 15x FY21F EPS. This is at a discount to an average forward 20x PE of leading renewable energy players globally to reflect: (1) KPower being a relatively new player in this space; and (2) its relatively small market value. On the flip side, from a relatively low base, the growth potential of KPower’s earnings is tremendous at 145.1% and 43.7% in FY21 and FY22F respectively based on our projections.

• Following a corporate exercise in June 2019 that ushered in new shareholders, management team and business direction, KPower has transformed itself into a builder of green utilities, with its primary focus on the provision of engineering, procurement, construction and commissioning (EPCC) and project management for renewable energy power plants including hydro, solar etc. in Southeast Asia, Central Asia, Europe and the Middle East.

• The investment merits of KPower are: 1. The bright prospects of renewable energy. According to the International Renewable Energy Agency, demand for energy in Asean is set to increase by 50% between 2019 and 2025. Also, during the same period, the dependence on renewable energy is projected to rise to 23% from 16%, underpinned by the global trends towards clean and sustainable energy and carbon neutrality to combat climate change. This augurs well for KPower which builds green utilities such as hydro, solar, biomass, power plants. 2. KPower is set to ride the green wave by virtue of its RM1.2bil order backlog on green utility projects, coupled with a tender book of RM3.2bil. Based on our assumption on job wins of RM1.4bil annually in FY21–23F (which is a tad more conservative than the company’s guidance for RM2bil annually), a net profit CAGR of 76% in FY20–23F is within reach. 3. KPower is a strong contender for EPCC packages under the 1 gigawatt 4th cycle of the large scale solar (LSS4) project, a brain child of the Ministry of Energy and Natural Resources. We understand that KPower has submitted tenders for at least 50MW, and could involve asset ownership in addition to EPCC.

• At about 12x forward earnings, we believe this homegrown renewable energy player has a compelling investment case given its involvement in the sector at the right time

Source: AmInvest Research - 4 Nov 2020