Investment Highlights

• We maintain our BUY recommendation and forecasts, but increase our fair value by 22% to RM5.06/share (from RM4.16/share previously) for Kumpulan Powernet (KPower) based on 15x CY21F EPS (from FY21F previously). 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 proposed a 4-for-1 share split and a 1-for-3 (after the share split entitlement date) free warrant issue with an indicative exercise price of RM2.50 per warrant. For illustration purposes, an investor who owns 3,000 KPower shares prior to the ex-date shall end up with 12,000 KPower shares plus 4,000 free warrants after the ex-date. Ex-all, our fair value for KPower shall adjust down to RM1.10. This is assuming full conversion of warrants and the interest income (at 2% p.a.) earned from the proceeds.
• 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 13x CY21 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 - 13 Nov 2020