KUALA LUMPUR (Aug 6): KAF Equities has initiated coverage on Ipmuda Bhd with a target price of RM1.60 and a “buy” call. 

In a note today, KAF Equities analyst Max Koh said the emerging renewable energy (RE) player offers a rare play into the RE space at the early stages, with its proposed acquisitions of a solar farm and hydropower plant, which he expects to result in earnings growth of 88% by financial year 2023 (FY23). 

Ipmuda had on June 18 announced that it is acquiring 70% equity interest in Telekosang Hydro One Sdn Bhd and Telekosang Hydro Two Sdn Bhd (collectively Telekosang), as well as 100% of the Telekosang Hydro One ASEAN Green Junior Sukuk for RM163.3 million. 

Telekosang is currently developing a 40-megawatt (MW) small hydropower plant project at Sungai Telekosang, Kemabong, Tenom, Sabah, which would be the largest of its kind in Malaysia.

"The new plant is on track for COD (commercial operations date) in December 2021, with a 21-year PPA (power purchase agreement). Based on its 24sen/kWh tariff and 78% utilisation rate, we estimate the plant to contribute RM26 million to the group in FY23, with an annual FCF (free cash flow) of RM50 million," Koh said. 

Besides that, Ipmuda is also acquiring 100% equity interest in Jentayu Solar Sdn Bhd, as well as owns and operates a 5.99 MW solar power plant in Pokok Sena, Kedah, for a total consideration of RM11.1 million. 

"The project was one of the successful bids of the LSS2 tender, with a tender price of 38.9sen/kWh (at the higher end of the tender range). We expect this plant to steadily contribute RM2 million annually to the group," Koh said.

"The acquisitions are pivotal in transforming Ipmuda into an RE and healthcare player. More importantly, the new Ipmuda is helmed by an experienced team in the RE space — notably executive chairman Beroz Nikmal Mirdin (who holds 27% stake). With over 20 years of experience in RE, Beroz was instrumental in developing the Telekosang mini hydropower plant and other major RE projects. CEO Jeffri M Yusup had also founded various healthcare facilities," he added. 

On the group's fundraising exercise by way of new share issuance, Koh argued that although Ipmuda's share base will be expanded to 629 million shares, the acquisitions are value-accretive with market capitalisation expected to expand by three times to RM443 million. This, he added, should improve investment interest from institutional funds. 

According to Koh, the downside risks include further delays in the commercialisation of the mini hydropower plant and deeper losses for Ipmuda's trading arm.  

At noon market break, shares of Ipmuda were up one sen or 0.86% at RM1.17, with a market capitalisation of RM118.71 million.