Investment Highlights

• We maintain our forecasts and our fair value (FV) of RM2.31 based on 18x fully-diluted 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 a positive 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. There is no adjustment to our FV for ESG based on our 3-star rating (Exhibit 2).

• Since our downgrade on 29 Jan 2021, KPower’s share price has retraced by about 25%. We upgrade the stock to BUY from HOLD as value has emerged.

• We expect more contract award announcements in the renewable energy infrastructure space, especially in Southeast Asia and the Middle East in the coming months. This is because business is gradually returning to normal (on the back of the vaccine rollout) and project owners wrapping up their tender evaluations.

• As such, there could be good news to KPower with an outstanding tender book of RM3.9bil of which about 75% are energy-related jobs (i.e. hydropower plants and solarrelated jobs), while the balance are utilities-related works.

• A pick-up in job wins also means KPower is on track to meet our assumption for annual job wins of RM1.4bil in FY21–23F (June). Our assumption is more conservative compared with KPower’s guidance for RM2.0bil in FY21F.

• YTD in FY21F, KPower has secured new jobs worth RM703.6mil. At present, its outstanding construction order book stands at about RM1.7bil.

• 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 RM1.7bil order backlog on green utility projects, coupled with a massive tender book of RM3.9bil.

• At less than 16x FY23F earnings, we believe that this homegrown renewable energy player remains a compelling investment case given its involvement in the green sector where the growth trajectory is just beginning.

Source: AmInvest Research - 14 Apr 2021