Investment Highlights

• We maintain BUY and our forecasts for Kumpulan Powernet (KPower), but increase our fair value (FV) to RM5.97 (from RM5.06) as we roll forward our valuation to 15x FY22F EPS (from 15x CY21F EPS 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 >100% in FY21F and >40% in FY22F based on our projections.
• KPower’s 1QFY21 core net profit of RM8.1mil came in within expectations at 26% of ours and consensus full-year estimates respectively.
• Its 1QFY21 core net profit jumped to RM8.1mil from less than RM1mil a year ago driven largely by progress billings from construction jobs secured mostly in FY20, we believe particularly, the RM254.3mil sewerage project in Kuala Lumpur, RM65.9mil 8MW hydropower plant project in Laos and RM354.0mil 32.5MW hydropower plant project in Perak, Malaysia.
• 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 12x FY21 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 - 1 Dec 2020