KUMPULAN Powernet Bhd (KPower) is poised to ride on the bright prospects of renewable energy amidst a likely 50% hike in energy demand within the Asean region between 2019 and 2025.
During the same period, the International Renewable Energy Agency has projected dependency on renewable energy to rise to 23% from 16%, underpinned by the global trends towards clean and sustainable energy and carbon neutrality to combat climate change.
Against such backdrop, AmBank Research found investment merits in KPower which builds green utilities such as hydro, solar, biomass and power plants.
“KPower is set to ride the green wave by virtue of its RM1.2 bil order backlog on green utility projects, coupled with a tender book of RM3.2 bil,” wrote analyst Jeremie Yap.
Based on an assumption on job wins of RM1.4 bil annually in FY2021–FY2023F (which is a tad more conservative than the company’s guidance for RM2 bil annually), a net profit compound annual growth rate of 76% in FY2020–2023F is within reach, according to AmBank Research.
Following a corporate exercise in June 2019 that ushered in new shareholders, management team and business direction, KPower has transformed itself into a builder of green utilities with a primary focus on the provision of engineering, procurement, construction and commissioning (EPCC) and project management for renewable energy power plants in Southeast Asia, Central Asia, Europe and the Middle East.
AmBank Research further noted that KPower is a strong contender for EPCC packages under the 1 gigawatt fourth cycle of the large scale solar (LSS4) project, a brain child of the Ministry of Energy and Natural Resources.
“We understand that KPower has submitted tenders for at least 50MW and (this) could involve asset ownership in addition to EPCC,” Yap pointed out.
“At about 12 times forward earnings, we believe this home-grown renewable energy player has a compelling investment case given its involvement in the sector at the right time.”
All-in, AmBank Research initiated its coverage on KPower with a “buy” call and a fair value of RM4.16/share based on 15 times its FY2021F earnings per share to reflect the company being (i) a relatively new player in the renewable energy space; and (2) its relatively small market value.
“On the flip side, from a relatively low base, the growth potential of KPower’s earnings is tremendous at 145.1% and 43.7% in FY2021 and FY2022F respectively based on our projections,” added the research house.
At 11.50am, KPower is up 10 sen or 2.94% at RM3.50 with 847,100 shares traded, thus giving the company a market capitalisation of RM293 mil. – Nov 4, 2020
