Kinergy Advancement Bhd - One-Stop Energy Partner
Fri, 28-Mar-2025 07:19 am
by Team Coverage • Apex Research

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KAB (0193)

Target Price (RM)

0.45

Recommendation

Buy

Summary

  • KAB is a one-stop energy and engineering service provider with core expertise in energy efficiency (EE), renewable energy (RE), clean energy, and M&E works. The Group specialises in SELCO solutions for energy-intensive industries, ensuring clients optimise energy use through cleaner and more cost-efficient means. Due to its unique, fully integrated model that is difficult to replicate, KAB is often able to secure projects via direct tenders, resulting in better margins and greater control over execution.

  • KAB is well-positioned for sustained earnings growth, supported by its RM361m unbilled order book, ongoing tender pipeline exceeding RM1bn, and a recurring income stream from 12 operational PPAs. These assets, with an average IRR above 12% and long-term tenures, are expected to contribute RM13m annually, forming a stable earnings base over the long run.

  • We assign a 18x P/E multiple based on FY26F earnings and incorporate a three-star ESG rating, arriving at a FV of RM0.45.

 

One Stop Energy and Engineering Provider. Since expanding into the energy sector in 2018, KAB has established itself as a one-stop energy solutions provider. Unlike conventional pure-play renewable energy contractors, KAB offers a full range of services covering from design and fabrication to installation and commissioning, across energy efficiency (EE), renewable energy (RE), and clean energy generation, tailored to each client’s energy specifications. KAB primarily focuses on SELCO projects, serving energy-intensive industries such as food processing, oleochemical and chemical manufacturing, oil & gas, waste recovery, power generation, and utilities. Thanks to its comprehensive in-house capabilities, KAB faces minimal competition due to its difficult-to-replicate business model and enjoys better margins, as most projects are secured through direct tenders.

 

Existing Projects Driving Growth. As of 31 Dec 2024, KAB has an unbilled order book of RM361m, with 71% from SEC and the rest from Engineering, which represents 1.5x orderbook-to-cover ratio against FY24 revenue. This provides strong earnings visibility through FY26F. Most of the order book will be recognised in FY25F, with c.RM150m expected from the 52MW Sipitang power plant project as the project is entering into progress billing phases. On top of that, the Group is currently engaged in early discussions for few data center projects, solar power plant projects, and power plant projects, collectively valued at over RM1bn in total. We expect an 50% success rate for the tenderbook and direct negotiation deals.

 

Strong Recurring Income Stream. KAB’s PAT jumped from RM2.8m in FY22 to >RM20m in FY23–FY24, driven by the gradual COD of multiple PPAs, turning into key earnings contributors. YTD, KAB’s asset portfolio comprise 12 PPAs totalling 27MW, with 41% from mini-hydro, 38% from solar, 14% from clean energy, and the rest from biogas. With all assets now operational, they collectively are expected to generate RM13m annually, contributing 65% of PAT in FY24. Looking ahead, we see earnings remaining steady, backed by PPAs with an average tenure of 12 years, most projects delivering IRRs above 12%, and continued traction in the CRESS framework, which is set to provide a stable, long-term revenue stream for the Group. accelerate post-RP4, as pricing becomes more competitive with GET rates. With acceleration of corporate ESG adoption driving RE demand, this presents a strategic opportunity for KAB to secure long-term recurring income. 

 

Penetrating into Power Generation. As of 7 Feb 2025, KAB acquired a 47.5% stake in Jati Cakerawala for RM35m, marking a strategic entry into the Independent Power Producer (IPP) sector. Through this acquisition, KAB holds an effective 38% indirect stake in the 650MW combined-cycle gas turbine (CCGT) power plant located in Perlis, which was decommissioned in Mar 2024 following the completion of its 21-year PPA. Given Malaysia’s rising power demand and the scheduled expiry of c.5GW of existing PPAs by 2030, we believe there is a strong likelihood that this plant could secure an SLA to extend operations temporarily, helping to maintain optimal reserve margins for system reliability. Based on historical plant performance, the asset has generated up to RM85m in annual PAT, which, which could translate to RM32.3m additional contribution to KAB’s bottom line upon recommissioning. In addition to this, the plant strategically located next to key infrastructure such as TNB’s 275kV transmission line and the PGU III gas pipeline, set as a prime candidate for repowering and capacity expansion to c.1,200MW, with an estimated redevelopment cost of RM1.2bn. We see no major financing risks premised to KAB’s existing RM500m sukuk programme, alongside TNB’s AAA-rated indirect ownership via its 20% stake in TTPC. 

 

Valuation & Recommendation. We assign a 18x P/E multiple based on FY26F earnings and incorporate a three-star ESG rating, arriving at a FV of RM0.45. This valuation implies a 14% discount to peers' forward P/E of 21x, reflecting KAB’s smaller market capitalisation and relatively limited exposure to large-scale solar farm projects.

 

Risk. Inability to secure new contracts, rising construction cost beyond expectations and skilled labours.

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