KPower is primarily involve in the construction of green energy power plants and specialised engineering services spreading across the ASEAN region and Nepal. Over the past few months, the company has secured several contracts worth more than RM500m. We expect KPower to register net earnings of RM50.0m and RM55.9m for FY6/22 and FY6/23 respectively, driven by higher contract recognition. BUY with a target price of RM1.28 based on SOP valuation.

Construction related activities undertaken by the company consists of engineering, procurement, construction and commissioning of sustainable energy and utilities projects. At present, KPower’s outstanding orderbook stands at RM1.9bn which provides earnings visibility for the next 2-3 years. Additionally, the company is actively exploring new business opportunities through mergers and acquisitions to boost its business prospects.

On Sep 2020, KPower in collaboration with Perbadanan Kemajuan Negeri Pahang (PKNP) participated and submitted a bid for a 50MW solar photovoltaic energy generating plant sited in Pekan, Pahang. KPower’s 95% owned subsidiary, PKNP KPower Suria SB had on 19 August 2021 signed the large-scale solar photovoltaic power purchase agreement (PPA) with TNB. The plant will begin contributing in 2024 with free cashflow (FCF) of RM2m per year for the first 15 years (after repayment of sukuk). Thereafter, from year 16-21, FCF will increase to RM12m per year.

Balance sheet is strong with net cash of RM45m as at 30 Jun 2021. The company has a dividend policy of 20% payout from net profit. Based on our estimates, KPower is expected to pay 2.0 sen and 2.2 sen for FY6/22 and FY6/23 respectively, translating into yield of 3.2% and 3.5%. Our BUY call is premised on (ii) its strong earnings visibility and growth potential underpinned by its RM1.9bn outstanding orderbook; (ii) income contribution from 50MW solar photovoltaic energy generating facility beginning 2024; and (iii) decent dividend yield.

Source: Rakuten Research - 6 Oct 2021