Investment Highlights

• We maintain our BUY recommendation, forecasts and fair value of RM5.97/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 >100% and >40% in FY21 and FY22F respectively based on our projections.
• KPower has secured a RM296.0mil design and engineering, procurement, construction and commissioning (EPCC) contract for a 27.3MW mini hydro power plant in Sungai Singor, Perak, with a construction period of 48 months.
• This latest contract has boosted KPower’s FY21F total job wins to RM543.3mil and its outstanding design/EPCC order book to RM1.6bil (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 RM1.6bil 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 13.5x 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 - 10 Dec 2020