Investment Highlights

• We maintain our BUY recommendation, forecasts and fair value of RM5.06/share for Kumpulan Powernet (KPower) based on 15x CY21F 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.

• We expect KPower’s 1QFY21 results, due to be announced on 30 Nov 2020, to come in strong with a net profit of between RM6.0mil and RM9.0mil, translating to more than a five-fold YoY growth vs. a net profit of only RM0.9mil in 1QFY20. The strong earnings growth would be driven by progress billings from RM1.2bil new jobs secured in FY20.

• A net profit of RM6.0mil and RM9.0mil in 1QFY21 would make up 19–29% of our FY21F full-year forecast and full-year consensus estimates, and hence it would be considered within expectations.

• Meanwhile, YTD in FY21F, KPower has secured new jobs worth a total of RM247.3mil (vs. our assumption for job wins of RM1.4bil annually in FY21–23F, which is slightly more conservative than KPower’s guidance for RM2bil in FY21F). At present, its outstanding construction order book stands at RM1.3bil (Exhibit 1).

• 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 (of which winners could be announced within weeks).

• At about 11.5x FY22F 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 - 25 Nov 2020