Investment Highlights

• We maintain our BUY recommendation and forecasts, keeping our fair value at RM5.97/share for Kumpulan Powernet (KPower) based on 15x FY22F 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 >100% and >40% in FY21 and FY22F respectively based on our projections.
• We came away from KPower’s analyst briefing feeling upbeat. The key highlights are as follows:
  1. We understand that the winners for the 1 gigawatt 4th cycle of the large-scale solar (LSS4) project is likely to be announced before the year is out. KPower has participated in the tender for 50MW, which could also involve asset ownership, in addition to engineering, procurement, construction and commissioning (EPCC) packages. We believe KPower is giving Samaiden, Solarvest, Cypark Resources and Megafirst Corporation a run for their money, a handful of listed companies that have proven capability and track record in carrying out EPCC solar projects. We gather there is a possibility that new entrants could also emerge winners for the LSS4 work packages. If this happens, KPower may reach out to them to set up JVs to carry out the work packages. KPower could be targeting another 50–100MW under this JV model.
  2. KPower reiterated its guidance for RM2.0bil job wins in FY21F vs. our more conservative assumption of RM1.4bil annually in FY21–23F. YTD in FY21F, KPower has secured new jobs worth RM247.3mil. At present, its outstanding construction order book stands at RM1.3bil (Exhibit 1).
  3. KPower has identified solar EPCC as one of its key growth areas (partly also due to the generally low executive risk for solar EPCC projects). It clarified that it is still in talks with Taiwanese-based Global Microgrid Technologies (GMGT) with regards to a NT$3.0bil (RM432mil) solar project in Taiwan, as against news reports suggesting that it has won the project.
• 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 - 7 Dec 2020