Kawan Renergy Berhad - Exceeded Expectations
Tue, 30-Dec-2025 08:53 am
by Tan Sue Wen • Apex Research

Counter

KENERGY (0307)

Target Price (RM)

1.05

Recommendation

Buy

  • KENERGY’s 4QFY25 CNP came in at RM6.4m, bringing 12MFY25 CNP to RM24.3m. The results exceeded expectations, accounting for 116% of our full-year forecast, mainly due to stronger-than-expected revenue recognition.

  • Following our attendance at Caterpillar’s conference call, management highlighted that products are expected to face extended lead times. We believe this will translate into stronger demand for KENERGY’s Rolls-Royce genset solutions, particularly for timesensitive Tier-4 data-centre projects.

  • Earnings have been revised by +4.0%/-3.1% for FY25F-FY27F, mainly to reflect changes in revenue recognition timing, with a larger portion of the existing order book now expected to be recognised in FY26F. We slightly raised our FY25F order book replenishment assumption to RM160m (from RM155m), following stronger-than-expected revenue recognition. 

  • Post earnings revisions, we derive a higher target price of RM1.05 (previously RM1.02), based on 19x FY27F EPS of 5.5 sen and supported by a three-star ESG rating. Maintain BUY.

 

Exceeded expectations. KENERGY’s 4QFY25 core net profit (CNP) came in at RM6.4m, bringing 12MFY25 CNP to RM24.3m. The results exceeded expectations, accounting for 116% of our full-year forecast, mainly driven by stronger-than-expected revenue recognition from ongoing contracted projects within the RE and Co-generation segments.

 

QoQ. 4QFY25 CNP declined 16.2% QoQ, mainly due to weaker contributions from the industrial process equipment (IPE; segmental revenue -12.2%) and industrial process plants (IPPs; segmental revenue -71.3%) divisions amid softer demand in a challenging economic environment. We believe this was further compounded by the early-stage execution of newly secured RE and Co-generation projects, where margins are typically lower due to higher upfront equipment costs. Additionally, the introduction of the 6% SST likely weighed on margins for projects secured prior to 1 July. Consequently, CNP margin declined by 6.8 pts to 15.0%.

 

YoY. 4QFY25 CNP rose 53.9%, mainly supported by higher contributions from the RE and Co-generation segments as several new projects commenced during the quarter, compared with a low base a year ago. This was partly offset by weaker performance in the IPPs and IPE segments as soft economic conditions persist in the current quarter.

 

Outlook. Earnings are likely to stay soft in 1Q due to the monsoon season and festive holidays, which typically slow engineering activities. Near-term order book replenishment is expected to pick up from 2Q onwards as seasonal disruptions ease. Nonetheless, we remain positive on KENERGY’s outlook, particularly as the recent 16.7% increase in gas facility base tariffs under RP3 should support higher interest in co-generation solutions as an alternative power source. To cater to a more diversified customer base, KENERGY spent RM7.4m in capex during the quarter to upgrade its R&D capabilities and equipment, mainly to support industrial and environmental solutions. Following our attendance at Caterpillar’s latest earnings call, management highlighted that products are expected to continue facing longer lead times due to overwhelming demand. We believe this could translate into stronger demand for KENERGY’s Rolls-Royce genset solutions, particularly for time-sensitive Tier-4 data-centre projects. Meanwhile, one genset related tender currently under discussion is affected by a land-related issue, which we expect to be resolved in the near term and should improve earnings visibility.

 

Order Book. As of Oct 2025, KENERGY’s order book stood at RM108.2m, which provides earnings visibility for up to one year.

 

Earnings revision. Following stronger-than-expected revenue recognition in FY25F, we slightly raised our order book replenishment assumption to RM160m from RM155m, with the bulk of revenue now expected to be recognised in FY26F. We maintain our order book replenishment assumptions for FY26F-FY27F, while revising our order book execution assumptions to reflect earlier project execution, with more revenue recognised in FY26F and a smaller portion spilling into FY27F. As a result, our earnings forecasts are revised by +4.0%/-3.1% for FY26F/FY27F. We have introduced our FY28F forecasts.

 

Valuation & Recommendation. Post earnings revisions, we maintaina BUY rating and derive a slightly higher target price of RM1.05 (previously RM1.02), based on 19x FY27F EPS of 5.5 sen and supported by a three-star ESG rating. We remain positive on the Group’s outlook, supported by: (i) up to 60% in-house component fabrication, which enhances cost control and project execution; and (ii) distribution status for Rolls-Royce generation sets and Solar Turbines, providing exposure to the accelerating data centre investment cycle and growing mission-critical power opportunities.

 

Risks. Rising steel and metal plate prices and slower-than-expected order book replenishment.

Read more details in:

Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.043919 4.078329
EUR 4.778652 4.785910
CNY 0.579618 0.580498
HKD 0.520471 0.524418
SGD 3.147680 3.171552