PETALING JAYA: Apex Securities Bhd has recommended a “subscribe” call on Kawan Renergy Bhd (KRB) with a target price of RM0.46, ahead of the group’s listing on the ACE Market of Bursa Malaysia on May 29.
In a report, the research house said the engineering-solutions provider has become well-known for its versatility in catering to diverse industries, both locally and internationally.
KRB specialises in the design, fabrication, installation and commissioning of industrial process equipment and process plants.
In 2020, the group expanded into various services involving renewable energy (RE) and co-generation plants, further solidifying its prospects as a strong player within the industry.
Apex Securities said between 2020 and 2023, each segment of the group enjoyed steady growth, as its total revenue doubled to RM98.4mil in 2023 from RM48.8mil in 2020.
“The improvement was propelled by the inclusion of additional RE and co-generation plants into the portfolio, which contributed RM22.1mil in financial year 2023 (FY2023). All segments also maintained strong margins in 2023,” it said.
Additionally, in the same time frame, more than half of KRB’s revenue was derived from the oleochemical and chemical industry, specialising in production of biolubricants, fatty acids and industrial esters for downstream users, which generated higher returns compared to other sectors.
“The global oleochemicals market size was valued at US$22.66 bil in 2022, and is forecast to grow at a compounded annual growth rate of 7.4% from 2023 to 2032. Malaysia plays a key role in the market, ranking second since 2019 and contributing about 20% to global capacity,” Apex Securities said.
KRB had also acquired a 1.2 megawatts (MW) biogas power facility in Bercham, Perak, intending to enter the power generation and sale of electricity business, as it aligns itself with Malaysia’s 2050 carbon-neutrality goal.
“The country’s electricity generation from gas is projected to grow at a higher rate of 4.9% from 2019 to 2050. This growth is driven by the government’s decision to refrain from building new coal-fired power plants, aiming for natural-gas plants to contribute up to 77.7% of electricity generation by 2050,” Apex Securities said.
On top of that, KRB plans to diversify its revenue by constructing a 2MW biomass power plant for RM15mil, which will use empty fruit bunch (EFB), wood chips or bamboo chips as fuel to generate 48MW hours of electricity per day, with expected revenue of RM4.9mil based on a tariff of RM0.281 per kilowatt hour.
“Currently, the group is awaiting the results of the bidding process, with an announcement expected in the second quarter of this year, with commissioning within 18 months,” the research house noted.
Apex Securities noted the use of bamboo for KRB’s innovative ventures will position it well to cater to potential expansion and meet the increasing demand for eco-friendly solutions.
Meanwhile, the research house said KRB maintains a robust balance sheet with a net cash position of RM34mil last year.
“Benefiting from a cost of debt below 4%, we gather that there is ample room to leverage and finance higher contract-value projects, particularly for co-generation plants,” the research house said.
Moving forward, Apex Securities has projected a core net profit of RM23.2mil for FY24 and RM29.8mil for FY25.
