Bursa Malaysia (KLSE) Stock Investment Portal

KPower (KPB MK)
No Signs Of Slowing Down; Keep BUY
Buy (Maintained)
Target Price (Return): MYR3.12 (+52%)
Price: MYR2.05
Market Cap: USD229m
Avg Daily Turnover (MYR/USD) 24.9m/6.18m
Analyst
Sean Lim
+603 9280 8867
sean.lim@rhbgroup.com
Share Performance (%)
YTD 1m 3m 6m 12m
Absolute 13.4 (16.3) 71.1 187.5 174.1
Relative 16.9 (14.6) 72.6 187.9 171.5
52-wk Price low/high (MYR) 0.21 – 2.80
Source: Bloomberg
 Reiterate BUY and TP of MYR3.12, 52% upside. With no surprises to its
1HFY21 (Jun) results, KPower is firmly on a growth trajectory, and on track
to hit its MYR2bn orderbook by end-FY21F. It has participated in the Large
Scale Solar 4 (LSS4) tenders as an asset owner – the results of which are
likely to be announced in the near term.
 Within expectations. KPower recorded core net profit of MYR17.4m
(+520% YoY) in 1HFY21. This accounted for 51% and 53% of our and
Street full-year estimates – within expectations.
 1HFY21 results review. 2QFY21 earnings improved 14% QoQ to
MYR9.3m on increased PBT contributions from construction-related
activities (+16%) backed by higher project billings. 1HFY21 earnings
improved exponentially YoY (+5.2x) from a minimal profit of MYR2.8m in
1HFY20 – largely on higher project billings from existing contracts that
include preliminary works at new construction projects in Laos and Nepal.
 Orderbook target of MYR2bn by end-FY21 on track. KPower’s
orderbook stood at MYR1.6bn as at mid-February, and it has secured
MYR615m worth of contracts YTD. We believe it is still on track to hit the
MYR2bn target by end-FY21. The manufacturing segment has been
reclassified into the healthcare and technology segment following the
acquisition of a 70% stake in Granulab. This segment is expected to
improve as the company starts to deliver medical supply-related jobs in
Indonesia. Its only commercial project in Sentul, Kuala Lumpur – with a
GDV of MYR41m – is estimated at 80% completion as at end Dec 2020.
The estimated unbilled sales of MYR8m will be recognised largely in
2HFY21F or up to early FY22F due to disruption caused by MCO.
 Still BUY. We maintain our earnings estimates, while keeping our TP at
MYR3.12 pegged to 25x FY22F P/E. Our P/E is still at a discount to that of
solar power-related stocks, which currently trade at >30x P/E. Note that we
have yet to account for the higher share base from the conversion of free
warrants issued recently – a 5-year tenure, with the exercise price fixed at
MYR2.50. All in, we remain upbeat on the company, as it offers strong
earnings growth – premised on the solid orderbook, as well as its handsome
ROEs. The recent venture into solar photovoltaic installation will further
strengthen its growth prospects, riding on the wave of interest in renewable
energy in Malaysia – if it is able to establish a track record.
 Downside risks: Weaker-than-expected project billings, and weaker-thanexpected margins.
Source: Company data, RHB
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KPower (KPB MK)
Price Close
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
Forecasts and Valuation Jun-19 Jun-20 Jun-21F Jun-22F Jun-23F
Total turnover (MYRm) 13 96 347 559 634
Recurring net profit (MYRm) 0 13 34 57 61
Recurring net profit growth (%) - 2,532.5 168.4 64.5 8.4
Recurring P/E (x) 1,907.98 72.48 27.00 16.41 15.14
P/B (x) 37.8 8.8 7.0 5.2 4.1
P/CF (x) na 87.57 36.35 17.14 13.04
Dividend Yield (%) na 0.3 0.7 1.2 1.3
EV/EBITDA (x) 219.50 44.71 15.73 9.21 7.94
Return on average equity (%) 2.0 19.6 28.7 36.2 30.2
Net debt to equity (%) Interest cover (x) 5.37 7.5 net cash 171.53 net cash 22.19 net cash 17.19 net cash 13.57
Note:
Small cap stocks are defined as companies with a market
capitalisation of less than USD1bn.
Overall ESG Score: 3.1 (out of 4)
E: Good
KPower’s orderbook mainly consists of EPCC of mini hydro
plants. It aims to widen product offering in renewable energy
to include wind, solar, and biomass. We expect its earnings
from renewable energy to increase going forward with its
venture into solar business via solar photovoltaic installation.
S: Good
KPower actively engages in the community, and is involve