KINERGY Advancement Berhad - Quiet Half Ahead of Q4 Ramp-Up
Thu, 03-Sep-2026 02:59 pm
by Research Team • Apex Research

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KINERGY (0193)

Target Price (RM)

0.67

Recommendation

Buy

• KINERGY’s 2QFY26 core net profit (CNP) came in at RM6.7m (-8.8% QoQ, -6.0% YoY), bringing 1HFY26 CNP to RM14.1m (+4.7% YoY), or 34% of our full-year forecast. We deem this in line, given the pronounced 4Q weighting from the Labuan gas engine milestone.

• The ramp is 4Q-loaded, driven by the Labuan 120MW gas engine arriving onshore from September, which triggers the single largest slug of cost and matching revenue recognition on the RM646.3m contract, with Sustainable Energy Solutions (SES) EPCC gross margin locked at 12% to 13%.

• Balance sheet strengthened materially, with net gearing halved to 0.25x (from 0.49x) and total liquid assets up 43.6% to RM168.8m, while the secured orderbook stood at RM1.14bn (2.4x FY25 revenue) against a RM3.08bn tender pipeline.

• Maintain BUY with an unchanged TP of RM0.67, based on 22.7x FY28F EPS of 2.94 sen.

 

Results are in line with expectations. After removing one-time disposal gains of RM1.96m (PPE), RM0.171m (investment properties) and RM0.197m (right-of-use assets), KINERGY’s 2QFY26 core net profit (CNP) arrived at RM6.7m (-8.8% QoQ, -6.0% YoY), bringing 1HFY26 CNP to RM14.1m (+4.7% YoY), or 34% of our full-year FY26 forecast of RM41.2m. We deem the results in line, given the strong 4Q weighting from the Labuan gas engine milestone.

QoQ. Revenue rose 7.2% QoQ to RM109.4m, driven entirely by the SES segment (+23.6% QoQ to RM94.3m) on active execution of the specialised energy EPCC projects in Sabah and Labuan. This more than offset the Engineering Services segment (-41.7% QoQ to RM14.9m), where legacy M&E jobs reached end-stage cost recognition. Segment EBIT mirrored the same trend, with SES EBIT up 22.8% QoQ to RM13.6m (margin: 14.4%, vs 14.5% in 1QFY26) while Engineering EBIT fell 71.0% QoQ to RM0.3m (margin: 1.9%, vs 3.8%). Group EBIT improved 16.3% QoQ to RM13.9m and PBT margin expanded to 9.7% (from 8.4%), although CNP eased 8.8% QoQ to RM6.7m. The net read is mix rather than deterioration with SES execution carrying group revenue and EBITDA higher, while the end-stage roll-off in Engineering held CNP back.

YoY. Revenue grew 11.9% YoY to RM109.4m, again led by SES (+16.3% YoY to RM94.3m), while Engineering Services softened 9.9% YoY to RM14.9m. Operating leverage from the SES segment lifted group EBIT 33.0% YoY to RM13.9m (margin: 12.7%, vs 10.7%) and PBT 40.4% YoY to RM10.6m (margin: 9.7%, vs 7.7%), with SES EBIT margin expanding to 14.4% from 11.1%. CNP, however, eased 6.0% YoY to RM6.7m after excluding the one-off disposal gains. Cumulatively, 1HFY26 revenue rose 27.1% YoY to RM211.4m and CNP grew 4.7% YoY to RM14.1m.

YTD. 1HFY26 revenue rose 27.1% YoY to RM211.4m, driven by the SES segment (+47.9% YoY to RM170.7m), which now accounts for more than 80% of group revenue, partly offset by a softer Engineering Services segment (-20.2% YoY to RM40.4m). Nevertheless, core net profit up 4.7% YoY to RM14.1m after adjusting for one-off disposal gains of RM1.96m (PPE), RM0.171m (investment properties) and RM0.197m (right-of-use assets).

Outlook. We remain positive on KINERGY’s earnings outlook. The 4QFY26 spike is a mid-project milestone rather than the end of contribution, as Labuan completion is guided for 2Q 2028, with the contract billed through 2027 and into 1HFY28. SES remains the group’s engine, with 1HFY26 segment revenue up 47.9% YoY to RM170.7m and now accounting for more than 80% of group revenue, while the 28MW Zero-CAPEX portfolio continues to provide a recurring, concession-like income floor. Engineering Services, meanwhile, sits at a cyclical trough as legacy M&E work reaches end-stage recognition (1HFY26 revenue: -20.2% YoY to RM40.4m), though its tenderbook has recovered to RM383m on MEP and data centre-linked demand, which gives the orderbook the potential to replenish when these tenders convert.

Orderbook. KINERGY’s secured orderbook stood at RM1.14bn as at 30 June 2026 (SES: RM1.05bn; Engineering: RM93m), equivalent to 2.4x FY25 revenue, against an active tender pipeline of RM3.08bn (SES: RM2.70bn; Engineering: RM383m). The Sabah 300MW CCGT, the Petronas Gas 150MW EPCC and the PKNPK Perak pipeline are the next legs of conversion, with the 72MW Sipitang completion in December 2026 the main roll-off to backfill. We view the pace of conversion, rather than the size of the pipeline, as the key swing factor for the FY27 earnings baseline.

Balance sheet. Funding capacity has improved markedly, with net gearing halved to 0.25x (from 0.49x) and total liquid assets up 43.6% to RM168.8m (cash: RM107.8m), aided by the RM41.5m partial monetisation of Jati Cakerawala Sdn Bhd (51% control retained). This gives KINERGY headroom to fund the next phase of the PKNPK and PKB pipelines alongside larger solar, BESS and data centre-linked works, with NETR and CRESS supportive of the medium-term pipeline.

Earnings Revision. We keep our FY26F to FY28F CNP forecasts of RM41.2m, RM47.6m and RM64.2m unchanged. With Labuan now set for completion in 2Q 2028, the revenue recognition trail is stretched without changing the total contract value. Peak recognition still lands in 4QFY26 with the engine delivery, while the balance of mechanical, electrical and commissioning works now spans the full FY27 and into 1HFY28 instead of tailing off in early FY28, giving FY27 a fuller period of recognition than under the previous schedule. The main phasing risk is the engine arrival timing, where a late-4Q delivery could push part of the recognition into 1QFY27, a shift in timing rather than quantum, while margin risk on the two gas engine EPCCs is low given locked forex, material and sub-contractor costs. Our two-year CNP CAGR of 24.8% remains intact.

Valuation. Maintain BUY with an unchanged TP of RM0.67, derived by applying the sector peer average PE of 22.7x to our FY28F EPS of 2.94 sen, with a three-star ESG rating applied at a 0% premium/discount.

Risks. Slower orderbook replenishment and weaker SELCO award conversion; earnings concentration, input cost inflation for steel, copper and specialist electrical equipment on future awards.

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