Kinergy Advancement Bhd - Growth On Track
Wed, 16-Jul-2025 08:11 am
by Team Coverage • Apex Research

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KAB (0193)

Target Price (RM)

0.45

Recommendation

Not Rated

  • KAB delivered robust core net profit growth of 27.1% yoy in 1QFY25, supported by reduction in administrative cost, consistent recurring income from its PPA assets, and higher revenue recognition from its SES and M&E EPCC segments.

  • Following recent contract wins, KAB’s order book has doubled qoq to RM1.4bn, providing solid revenue visibility for at least the next five years.

  • KAB is actively expanding its RE footprint through a strategic partnership with PKNPk, for a 1.8GW pipeline comprising 29 projects across various solar and hydro assets, to strengthening its long-term recurring income opportunities. 

  • The strategic entry into the IPP segment through its stake in the TTPC power plant presents substantial upside, driven by opportunities for plant recommissioning and future capacity expansion amid Malaysia's growing power demand. Historically, this plant has contributed up to RM85m annually in PAT, potentially adding around RM33m to KAB’s earnings upon recommissioning.

  • We assign a fair value of RM0.45 based on 18x PER applied to FY26F EPS of 2.5 sen, along with a three-star ESG rating.

 

Robust Earnings Growth. In 1QFY25, KAB registered a 27.1% yoy increase in core net profit to RM6.3m, driven by a 12.3% reduction in administrative costs, steady recurring income from PPA assets, and greater revenue recognition from both SES-related EPCC projects and M&E-related EPCC projects (each segmental revenue +72.6% yoy). Looking ahead, earnings visibility for the upcoming quarter remains strong, supported by (i) ongoing progress on the 52MWac Sipitang power plant project, which is expected to contribute about RM150m in FY25F, (ii) continued revenue recognition from SES-related EPCC projects, and (iii) stable recurring income from a portfolio of 12 renewable energy (RE) assets, which collectively generates RM13m annually, with the remaining PPAs ensuring long-term revenue for at least eight more years.

 

Orderbook and Tenderbook. Following recent contract wins, KAB’s orderbook has expanded to RM1.4bn, translating into an orderbook-to-revenue cover of 5.6x relative to FY24 revenue. This marks a doubling of the orderbook qoq, driven by accelerated demand for sustainable energy solutions (SES). About 80% of the orderbook is derived from the SES segment, primarily solar EPCC projects, while the remaining portion is attributable to M&E engineering. KAB’s tender pipeline remains robust at RM3.5bn, comprising multiple early-stage deals in data centre infrastructure, solar power plants, and conventional power assets. Historically, KAB has maintained a strong 50% tender win rate, underscoring confidence the Group’s execution capabilities. 

 

Transition into an IPP.  To recap, a pivotal step in KAB’s transformation into an energy solutions provider was the acquisition of a 47.5% equity stake in Jati Cakerawala Sdn Bhd for RM35m. The deal has provided KAB an effective 38% indirect stake in the repowering of Teknologi Tenaga Perlis Consortium Sdn Bhd’s (TTPC) 650MW power plant in Perlis, marking the Group’s maiden entry into the IPP sector. The plant is currently seeking a short-term PPA extension. Approval is highly likely given the government’s commitment in maintaining a healthy reserve margin amid surging electricity demand from data centres and the scheduled expiry of c.8.8GWac of fossil fuel plants’ PPAs/SLAs by 2030. Historically, the plant has generated up to RM85m in PAT annually, which could deliver an incremental RM33m to KAB’s bottom line upon recommissioning. Furthermore, KAB is exploring the potential for redevelopment and expansion to a capacity of around 1,200MWac, leveraging its strategic location near transmission lines and the PGU III gas pipeline. While our forecast has yet to incorporate these developments pending regulatory approvals, we believe these catalysts would drive a positive re-rating of KAB’s valuation.

 

More potential RE projects in the pipeline. KAB is aggressively expanding its RE portfolio, reinforcing its role as a leading SES provider in Malaysia. In February 2025, KAB announced a strategic collaboration with Perbadanan Kemajuan Negeri Perak (PKNPk) to explore 29 RE projects, boasting a combined capacity exceeding 1.8GW. This initiative aligns with the state’s sustainability goals under the Perak Sejahtera 2030 framework, leveraging KAB’s expertise in innovative energy solutions to enhance Perak’s energy resilience and support national RE targets. Planned projects include a mix of floating solar, ground-mounted solar, and small-scale hydropower solutions, designed to meet the rising demand for clean energy, particularly from data centre operators prioritising ESG agendas. While the newly launched GET scheme is currently more cost-competitive and expected to attract early offtakers, we view CRESS as the long-term solution for multinational corporations, offering the security of 8–20-year PPAs to hedge against energy price volatility. 

 

Earnings forecasts. Maintained.

 

Valuation & Recommendation. We assign a fair value of RM0.45, based on 18x FY26F EPS of 2.5 sen and a three-star ESG rating. We like on KAB for its (i) stable recurring income backed by its 12-asset RE portfolio with at least eight years of remaining PPA duration, (ii) extensive track record as a one-stop energy solutions provider and (iii) strategic entry into the IPP sector, offering a positive re-rating potential.

 

Risks. Heavy reliance on government initiatives, inability to secure new contracts, rising construction cost.

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