RHB Research has initiated coverage on Kinergy Advancement Bhd (KASB) with a BUY call and a sum-of-parts target price of 60 sen, implying 49% upside, as the group expands its presence in Malaysia’s independent power producer (IPP) industry.
The research house sees Kinergy Advancement as an emerging power generation player, supported by its proposed 1.5GW gas-fired power plant in Perlis, a RM1.1 billion outstanding orderbook and ongoing engineering, procurement, construction and commissioning (EPCC) works for PETRONAS.
Although the Perlis plant is only expected to commence operations in 2030, RHB anticipates earlier earnings contributions from construction and mechanical and electrical works associated with the development.
The research house expects Kinergy Advancement’s concession asset portfolio to expand to approximately 1.6GW by 2031, from 31MW currently, based on the capacity of projects under development.
RHB said the group is entering an IPP market largely dominated by established players such as Tenaga Nasional Bhd, YTL Power International Bhd and Malakoff Corporation Bhd.
With Malaysia requiring an estimated 6GW to 8GW of additional generation capacity, RHB expects Kinergy Advancement to sign a power purchase agreement (PPA) for the Perlis plant in the first half of 2027.
The research house anticipates delivery of the project’s first gas turbine next year, followed by commissioning of Phase 1 in 2030.
It highlighted the importance of securing turbine supply early, given an estimated seven-year order backlog among global manufacturers.
Assuming Kinergy Advancement holds a 20% interest in the project and secures a 15-year PPA, RHB has incorporated a RM330 million discounted cash flow valuation for the Perlis plant into its target price.
The research house also expects the group to participate in approximately RM400 million worth of mechanical and electrical works for the project, potentially contributing to revenue in FY27 and FY28.
PETRONAS Contract To Support Near-Term Earnings
While the Perlis development represents a longer-term growth opportunity, RHB expects Kinergy Advancement’s existing EPCC business to drive earnings over the next two years.
The group’s RM1.1 billion outstanding orderbook is equivalent to 2.4 times FY25 revenue, with approximately 92% arising from its sustainable energy solutions segment.
RHB expects stronger earnings in the second half of 2026 as progress billings accelerate for the group’s RM646 million EPCC contract involving PETRONAS’ 120MW Labuan gas engine project.
The research house forecasts revenue growth of 21% in FY26, supported by greater contributions from the Labuan contract.
It also projects a 14% revenue compound annual growth rate between FY25 and FY28, underpinned by existing contracts and sustainable energy projects.
Kinergy Advancement is currently tendering for approximately RM3 billion worth of projects, of which 88% comprise EPCC works within the sustainable energy solutions segment.
Its existing 31MW concession portfolio provides recurring earnings and cash flow while the group pursues larger generation assets.
RHB also sees potential additional value from new hydropower developments involving Safran and the Perak State Government, estimating that these opportunities could add approximately 12% to its target price if realised.
Earnings Forecast To Grow 44% In FY26
RHB forecasts Kinergy Advancement’s earnings to increase by 44% in FY26, followed by 9% in FY27 and 11% in FY28, based on its outstanding orderbook and an assumed pre-tax profit margin of 10%, compared with 8% last year.
The research house expects the group’s existing businesses to deliver an earnings compound annual growth rate of approximately 20% between FY25 and FY28.
Its 60 sen target price is derived by applying a 19 times price-to-earnings multiple to FY27 forecast recurring earnings and incorporating the RM330 million valuation attributed to Kinergy Advancement’s assumed stake in the Perlis plant.
RHB also applied a 4% environmental, social and governance discount to its valuation.
The research house identified delays in the commissioning of the 1.5GW Perlis plant and margin compression as the principal downside risks to its earnings forecasts and valuation.
