Investment Highlights

• We maintain our BUY recommendation, forecasts and fair value (FV) of RM2.31 based on 18x FY23F 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. No ESG-related adjustments to our fair value based on a 3-star rating as appraised by us (Exhibit 2).

• KPower has secured four new renewable jobs with a combined value of RM510mil as follows:

1) Design and engineering, procurement, construction and commissioning (EPCC) of an 18.7MW mini hydro power plant in Sg Jelai Kecil, Pahang (RM199.2mil);

2) Design and EPCC of a 13.9MW mini hydro power plant in Sg Telom, Pahang (RM148.0mil);

3) Design and EPCC of a 12.0MW mini hydro power plant in Sg Lemoi, Pahang (RM127.8mil); and

4) Design and EPCC of a 5.25MW mini hydro power plant in Sg Kampar, Perak (RM35.0mil).

• All the projects have a construction period of 24 months.

• The latest contracts boosted KPower’s FY21F (YE June) total job wins to RM1.2bil, which is still within our annual job wins assumption of RM1.4bil for FY21–23F (vs. KPower’s guidance of RM2.0bil for FY21F). They have also enlarged its outstanding construction order book by about 30% to RM2.2bil.

• 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; and (2) its strong earnings visibility and growth potential underpinned by its RM2.2bil order backlog on green utility projects, coupled with a massive tender book, estimated at about RM3.4bil.

• At about 16x FY23F earnings, we believe that 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 - 27 Apr 2021