KPower expects earnings to be driven by growing orderbook

The group, which initially started off in textile manufacturing, has in recent years shifted its focus more towards energy, utility, infrastructure and logistics


A HEALTHY orderbook of RM1 billion is expected to result in more healthier earnings for Kumpulan Powernet Bhd (KPower) for over the next two financial years.

Group MD Mustakim Mat Nun said KPower recently returned to the black with a profit after tax (PAT) of RM2.8 million for the first half of the year, paving the way for stellar earnings potential for the rest of financial year 2020 (FY20).

“While the PAT for the first six months is RM2.8 million — which is more than five times the net profit for FY19 which was RM480,000.

“The full impact of this orderbook will be seen in FY21 when the entire announced project/orderbook will be executed,” he told The Malaysian Reserve (TMR).

At the moment, KPower tenderbook stands at RM2.99 billion comprising projects in the energy segment.

KPower posted a net profit of RM1.86 million in its second quarter ended Dec 31, 2019 (2QFY20) compared to a net loss of RM1.13 million the year before, lifted by its property development segment.

The group, which initially started off in textile manufacturing, has in recent years shifted its focus more towards energy, utility, infrastructure and logistics.

Mustakim said as at 2QFY20, property development maintains as the biggest contributor, while infrastructure and other construction jobs contributed equally.

Meanwhile, the utility segment only start to contribute in 2Q. Going forward he said the group expects energy segments to contribute significantly as announced projects start to be implemented.

“Due to the long-term nature of the energy, utility and infrastructure segments, the demand is still going strong.

“As energy- and utility-related demands in the long term remains steady, government and national utilities will have to prepare for demand for the next 15-20 years in the future,” he added.

Commenting on an impact from the Covid-19 pandemic, he said even if it continues for another two years, it will have a short-term impact on the demand.

“As long as there are economic activities there will always be demand for energy, water and utilities,” he said.

The group recently clinched a RM207.84 million contract from Ghaurishankar Power Development Pte Ltd to build a mini-hydropower plant in Solukhumbhu, Nepal.

The contract will require KPower to design, build and commission a mini-hydropower plant with a capacity of 22.9MW.

KPower expects to complete the project within 36 months from the commencement date or not later than May 12, 2023, it said in an exchange filing on May 13.

It symbolises a new milestone for the company as they are officially setting a foothold in Nepal for the first time.

In February, the group also secured a US$15.9 million (RM69.96 million) contract from Zhenghong Building Road and Bridge Construction to build a hydropower plant at Nam Samoy in Vientiane, Laos.

Under the contract, the company will undertake, among others, the design, supply, construction, commissioning and completion of an 8MW hydropower plant in the Vientiane province.

Meanwhile, RHB Investment Bank Bhd (RHB IB) expects further fundraising exercise by KPower in early February next year. The group completed a private placement (10% of existing share base) to raise RM13.3 million.

Proceeds will be utilised to finance the construction of sewerage treatment facilities and upgrading works, as well as construction of a Green Building Index certified building in Kuala Lumpur.

“Meanwhile, we also gather that its major shareholder Datuk Dr Abdul Karim Abdullah has advanced RM10 million cash to the company as a shareholder loan for working capital purposes.

“In view of its aggressive bidding, we believe it will need to tap further into the capital market to raise more funds,” the research house said in a newly launched RHB Top 20 Malaysia Small Cap Companies Jewels 2020 book.

Based on an ascribed price-earnings range of 10-12 times on 2021F earnings, RHB IB derives a fair value range of RM2.15-RM2.58 by assuming equity fundraising to enlarge the share base by another 30%.

“Our ascribed valuation is higher than FBM Small Cap Index of nine times as we expect exponential earnings growth in the next three years,” it said.