Kawan Renergy Bhd (KENERGY, 0307) is debuting on Bursa ACE Market today. The company primarily involves in the design, fabrication, installation and/or commissioning of industrial process equipment, process plants as well as renewable energy and co-generation plants. The company plans to grow its renewable energy (RE) business by bidding for a new 2MW biomass plant and improving its existing Bercham plant. Fuelled by robust growth within the power sector, we expect KENERGY to register core net earnings of RM15.4m and RM18.9m for FY10/24 and FY10/25 respectively. BUY with a FV of RM0.45 based on 13x PER (3-years average of its peers of similar scale) over FY10/25 EPS. The company is in net cash position as at 1QFY10/24 and we expect this to remain post-IPO.

With a proven track record spanning 28 years, KENERGY’s services are tailored to its customers' specific needs. The company's expertise lies in understanding industrial process requirements and proposing suitable process plants across a wide spectrum of industries.

As of 31st March 2024, KENERGY has a total outstanding orderbook of RM72.9m, whereby RM51.8m is expected to be recognised in FY10/24. In the same period, the company is in talks for an industrial process equipment project, a cogeneration power plant, and two process plant projects, together valued at approximately RM113.0m. Additionally, KENERGY has tendered for five process plant projects with a combined estimated value of RM81.6m. For the power generation segment, KENERGY’s Bercham Plant has an installed capacity of 1.2MW and a net export capacity of 1MW and is operating under the Feed-in Tariff (FiT) mechanism, hence, the company is licenced to sell up to 24MWh of electricity per day. Nevertheless, its current production is below optimal levels due to blockages in the gas piping, with only 1.5MWh of electricity sold per day, which is only 6.3% of the maximum allowable 24MWh per day. Hence, the company is set to improve Bercham Plant's output by using an anaerobic digestion system to convert agricultural waste into biogas for electricity generation. Additionally, KENERGY aims to build a new 2MW biomass power plant to expand its power generation and electricity sales business, diversifying its income base to include more recurring income.

KENERGY does not have a formal dividend policy, however the company intends to pay dividend to shareholders depending on its profitability and CAPEX requirements. Based on our assessment, assuming a 20% payout ratio seems fair in light of the robust operating cash flow. Thus, we expect KENERGY to pay dividend of 0.6sen and 0.7sen for FY10/24 and FY10/25, translating into yields of 1.9% and 2.3%.

Source: Rakuten Research - 29 May 2024

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