KUALA LUMPUR (April 29): Engineering solutions provider Kawan Renergy Bhd, en route to list on Bursa Malaysia's ACE Market next month, said on Monday that it anticipates minimal effect on its financial performance due to the escalating steel prices driven by surging commodity costs.

The company primarily procures auxiliary parts and equipment, subcontractor, and outsourced services, such as steel plates, which comprised 84.6% of its total purchases in the financial year ended Oct 31, 2023 (FY2023).

“When material prices go up, we will sell [at] higher pieces to our clients. We are a project company, so we do not keep a lot of stocks. We only buy materials when clients need it,” Kawan Renergy managing director Lim Thou Lai told reporters in conjunction with the company's prospectus launch on Monday.

According to Lim, Kawan Renergy has not encountered any adverse effect on its financial performance over the past three years, as the company was able to pass on the increase in cost to its customers in a timely manner.

Kawan Renergy is principally involved in the design, fabrication, installation, and commissioning of industrial process equipment, process plants as well as renewable energy and co-generation plants. The company is also an independent power producer involved in power generation and sale of electricity.

Lim also noted that the depreciation of the ringgit against the US dollar benefits Kawan Renergy as higher import cost would encourage local customers to seek products or services from the company.

In FY2023, local markets constituted approximately 82% of the company's revenue, with 14% coming from the US, and the remaining 4% from Indonesia, Singapore, Japan, and other countries.

'Company to benefit from National Transition Energy Roadmap'

Kawan Renergy aims to raise RM33 million through its initial public offering (IPO), with 45.5% of the proceeds allocated to meet working capital needs for ongoing and future co-generation plant projects. This includes enhancing output for the Bercham plant in Perak and constructing a new two-megawatt biomass power plant.

In FY2023, the renewable energy segment contributed approximately 22% of the group's revenue, while industrial processes and equipment were the primary revenue drivers, accounting for 49% of total revenue.

When queried about future earnings contributions from the renewable energy segment, Kawan Renergy chose not to disclose specific targets. However, Lim added, “We will largely benefit from the NETR (National Transition Energy Roadmap), and are prepared to develop more power plants."

Currently, the company’s total unbilled order book stood at RM72.9 million.

Kawan Renergy is slated to be listed on the ACE Market on May 29. Based on the IPO price of 30 sen per share, the company is expected to have a market capitalisation of RM165 million after listing, valuing the company at about 12.4 times its price-earnings multiple — based on a profit after tax of RM13.3 million for FY2023.