Investment Highlights

• We maintain our net profit forecasts and update our fair value (FV) to RM2.57 (from RM7.96) following the completion of a 4-for-1 share split and a 1-for-3 (post the share split) free warrant issue and the rolling forward of our base year to FY23F from FY22F. The basis of our FV is unchanged at 20x forward earnings, in line with the valuations of leading renewable energy players globally. Since our initiation on 4 Nov 2020, KPower’s market capitalisation has more than tripled to RM1.2bil from RM370mil. We believe the valuation is now fair and hence we downgrade the stock to HOLD from BUY.

• KPower has entered into a memorandum of agreement with Public Islamic Bank Berhad (PIBB) to collaborate over the next 24 months for the purpose of securing works relating to the Net Energy Metering scheme (NEM 3.0). A brainchild of the Sustainable Energy Development Authority (SEDA), the programme entails the installation of 500MW of roof-top solar photovoltaic (PV) systems in residential, government, commercial and industrial buildings from 1 Feb 2021 till 31 Dec 2023 (Exhibit 2).

• We understand that KPower, via the collaboration with PIBB, hopes to secure up to 50MW or 10% of the total 500MW under the NEM 3.0. We understand that under the arrangement, PIBB will provide funding while KPower will undertake the installation works. PIBB, a wholly-owned unit of Public Bank Berhad, is a licensed financial institution under the Islamic Financial Services Act 2013 under Bank Negara Malaysia.

• We are positive on the latest development. From our channel checks, we understand that KPower’s latest move could potentially boost its current outstanding orderbook of RM1.6bil by 10-15%. YTD in FY21F (June), KPower has thus far bagged new job wins of RM543.3mil. 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. However, at current valuations of 21x FY23F earnings, we believe its upside is capped.

Source: AmInvest Research - 29 Jan 2021