Kenanga Research has downgraded Kawan Renergy Bhd to NEUTRAL from its previous rating and slashed its target price to 38 sen from 57 sen after the engineering solutions provider’s nine-month core earnings fell short of expectations. Kawan Renergy’s latest quarterly results were affected by cost overruns on a power plant project in Sabah.
In a research note, Kenanga said Kawan Renergy recorded third-quarter FY2026 core net profit (CNP) of RM2.0 million after adjusting for RM0.2 million in exceptional items, bringing nine-month core earnings to RM8.9 million.
The nine-month figure represented just 34% of Kenanga’s full-year forecast and 55% of consensus estimates.
The earnings shortfall was attributed mainly to cost overruns on the Sabah power plant project, elevated transportation, labour and material expenses, as well as additional Sales and Service Tax (SST) costs absorbed by the group.
Quarter-on-quarter, however, core profit jumped 177% to RM2.0 million despite revenue remaining broadly flat at RM47 million.
Kenanga said profitability improved as cost overruns on the Sabah project eased while additional works progressed towards completion. A more favourable project mix, including higher contributions from industrial process equipment and renewable energy and co-generation projects, also helped.
Gross profit margin improved to 13.6%, while core net profit margin increased to 4.4%.
On a year-on-year basis, core profit nevertheless declined 73% despite revenue rising 33%, reflecting the impact of higher project and operating costs.
Kenanga expects the earnings recovery to continue into the fourth quarter as the Sabah project approaches completion. Kawan Renergy’s current order book stands at about RM92 million, while management is discussing with the main contractor the potential recovery of additional costs incurred on the project.
Following the weaker results and slower order replenishment, Kenanga cut its FY2026 and FY2027 earnings forecasts by 35% and 9%, respectively.
It also reduced its FY2026 order book assumption to RM105 million from RM135 million and FY2027 to RM165 million from RM170 million, noting that year-to-date contract wins stood at only RM72 million.
Kenanga lowered its valuation multiple to nine times FY2027 earnings from 12 times previously, resulting in the revised 38 sen target price.
