Investment Highlights

• We maintain our BUY recommendation, forecasts and fair value of RM4.16/share for Kumpulan Powernet (KPower) based on 15x FY21F EPS. This is at a discount to the 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.
• KPower has secured two renewable energy job wins worth a total of RM54.6mil. The details are as follows:

1. Design and engineering, procurement, construction and commissioning (EPCC) of a 3.1MW mini hydropower plant in Sg Simpang, Sumatera in Indonesia (RM29.7mil); and
2. Design and EPCC of a 2.6MW mini hydropower plant in Sg Klaai, Sumatera in Indonesia (RM24.9mil).

• Both projects are expected to be completed in 24 months. This latest development has boosted KPower’s FY21F total job wins to RM247.3mil and the group’s outstanding design/EPCC order book to RM1.3bil (Exhibit 1).
• We maintain our annual job wins assumption of RM1.4bil for FY21–23F (which is a tad more conservative against KPower’s guidance of RM2bil for FY21F).
• We continue to like KPower for: (1) the bright prospects of renewable energy, underpinned by the global trends towards clean and sustainable energy and carbon neutrality to combat climate change; (2) its strong earnings visibility and growth potential underpinned by its RM1.3bil order backlog on green utility projects, coupled with a massive tender book of RM3.2bil; and (3) it being a strong contender for EPCC packages under the 1 gigawatt 4th cycle of the large-scale solar (LSS4) project locally.
• At about 12.5x forward earnings, we believe this homegrown renewable energy player has a compelling investment case given its involvement in the green sector where the growth trajectory is just beginning.

Source: AmInvest Research - 6 Nov 2020