KUALA LUMPUR (May 21): Analysts are upbeat on prospects for KPower Bhd after its third-quarter net profit surged fivefold.

In a note today, AmInvestment Research analyst Jeremie Yap raised his fair value (FV) for the stock to RM2.47 from RM2.31 prior, based on 18 times revised earnings per share (EPS) of 13.7 sen forecast for the financial year ending June 30, 2023 (FY23).

“We value KPower at a discount to the average forward 20 times price-earnings ratio (PER) of leading renewable energy players globally to reflect: i) KPower being a relatively new player in this space; and ii) its relatively small market value. No ESG (environmental, social and governance)-related adjustments to our FV based on a three-star rating as appraised by us,” he wrote.

He also increased his net profit forecasts for FY21-23 by 31%, 15% and 8% respectively to RM41 million, RM51.9 million and RM75.3 million.

“We continue to like KPower for: i) the bright prospects for renewable energy, underpinned by global trends towards clean and sustainable energy and carbon neutrality to combat climate change; and ii) its strong earnings visibility and growth potential underpinned by its RM2.2 billion order backlog on green utility projects, coupled with a massive tender book of RM3.4 billion,” he said.

“At about 14 times fully-diluted FY23F (forecast) earnings, we believe that this home-grown renewable energy player has a compelling investment case given its involvement in the green sector where the growth trajectory is just beginning,” he added.

Yap maintained his “buy” call on the stock.

Meanwhile, RHB Research analyst Sean Lim kept his “buy” call and target price (TP) of RM3.12 for the stock.

“While construction activities could be affected in the near term due to a resurgence in Covid-19 cases, we believe overall prospects are still bright backed by a strong order book and contract flow,” he said.

He also raised his FY21 earnings forecast for KPower by 17% to RM40.2 million to account for higher billings while maintaining his FY22 and FY23 earnings estimates.

“We remain cautious about 4QFY21 (fourth quarter ending June 30, 2021) activities in view of rising Covid-19 cases in Malaysia. Our unchanged TP of RM3.12 is still pegged at 25 times FY22F PER. We believe KPower could potentially raise funds to finance the LSS4 (Large Scale Solar) project and for future expansion.

“Assuming a cash call to enlarge its share base by 10%, our TP could be diluted to RM2.84 if we assume no incremental earnings. All in, our outlook remains positive as KPower has strong earnings growth potential, premised on its solid order book and handsome ROE (return on equity). Downside risks to our call are a lower-than-expected order book replenishment rate and project cost overruns,” he added.

To recap, KPower reported a net profit of RM14.15 million for 3QFY21, almost triple from RM2.67 million a year ago.

Meanwhile, revenue surged year-on-year (y-o-y) to RM137.66 million from RM31.68 million.

At 9.47am, KPower was down one sen or 0.61% at RM1.63, giving it a market capitalisation of RM741.82 million.