Investment Highlights

• We maintain our forecasts but reduce our fair value (FV) by 10% to RM2.31 (from RM2.57 previously) based on 18x FY23F EPS (from 20x previously), which is now at a 10% discount to the 20x forward PE of leading renewable energy players globally. This is to reflect close to a 30% loss in its market capitalisation from a peak of RM1.3bil on 18 Jan 2021 to RM927mil currently, making it less attractive to certain large institutional investors. Maintain HOLD.

• KPower’s 1HFY21 net profit came in within expectations at 56% and 53% of our full-year forecast and the full-year consensus estimates respectively.

• Its 1HFY21 core net profit jumped more than fivefold, driven largely by progress billings from construction jobs secured mostly in FY20, we believe particularly, a sewerage project in Kuala Lumpur (RM254.3mil), an 8MW hydropower plant project in Laos (RM65.9mil) and a 32.5MW hydropower plant project in Perak (RM354.0mil).

• Meanwhile, YTD for FY21F (June), KPower has secured jobs worth a total of RM543.3mil (vs. our assumption for job wins of RM1.4bil annually in FY21–23F, which is slightly more conservative than KPower’s guidance of RM2.0bil in FY21F). At present, its outstanding construction order book stands at RM1.6bil (Exhibit 2).

• 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 16x FY23F earnings, we believe its upside is capped.

Source: AmInvest Research - 23 Feb 2021