Still BUY, with a DCF-derived TP of MYR0.50.

Kinergy Advancement Berhad (KAB) has demonstrated impressive financial performance in Q1 FY2024, driven by the strong growth in its Sustainable Energy Solutions (SES) segment. The company’s strategic focus on sustainable energy positions it well for continued growth. Our target price (TP) of MYR0.50 represents a promising investment opportunity, given KAB’s solid financial results and robust market prospects.

Financial Results Overview

- Revenue: RM42.04 million for Q1 FY2024, a slight decrease of 1.7% compared to RM42.76 million in Q1 FY2023.

- Gross Profit: Increased by 32.2% to RM10.73 million from RM8.12 million.

- Profit After Tax (PAT): RM5.12 million, a 98.6% increase from RM2.58 million in the same quarter last year.

- Segmental Performance:

- Engineering Segment: Revenue of RM22.07 million (YoY decrease due to project completions), with an operating profit of RM1.26 million (down from RM1.68 million).

- Sustainable Energy Solutions (SES) Segment: Revenue of RM19.86 million (up from RM5.31 million), with an operating profit of RM5.94 million (up from RM2.68 million).

Detailed Financial Calculations

Revenue and Profitability

Segmental Performance

Forward PE Calculation

To calculate the forward price-to-earnings (PE) ratio based on the target price (TP) of RM0.50, we need to estimate KAB’s earnings per share (EPS) for the full year and then apply the target price to determine the PE ratio.

Earnings Per Share (EPS) Estimate

1. Assumed full-year earnings (conservative estimate):

- Q1 PAT: RM5.12 million

- Full-year PAT estimate on projects: RM30.00 million

2. Number of shares:

- Current number of shares: 1,986,431,781 (based on the latest issuance and financial statements).

3. EPS Calculation:

- Full-year EPS = Full-year PAT / Number of shares

- Full-year EPS = RM20.48 million / 1,986,431,781

- Full-year EPS = RM0.0151

Forward PE Ratio Calculation

- Target Price (TP): RM0.50

- Forward PE Ratio: TP / Full-year EPS

- Forward PE Ratio: RM0.50 / RM0.0151 = 33.11

Valuation and Recommendation

- Earnings-derived TP: MYR0.50, implying a forward PE ratio of 33.11x.

- Investment Rationale: KAB’s strong and consistent financial performance in the SES segment, robust growth potential, and ESG excellence underpin our positive outlook. The company has recently received two prestigious awards: being named as one of the Top 10 Energy Sustainability Solutions Providers in APAC 2024 and 1 of the 11 New Inclusions on FTSE4Good Indexes (FTSE4Good Bursa Malaysia Index and the FTSE4Good Bursa Malaysia Shariah Index since December 2023) for its ESG excellence. These accolades further solidify its reputation in the energy industry. KAB is well-positioned to capitalise on the increasing demand for sustainable energy solutions in Southeast Asia and contribute to its regional strategic expansion

- Key Risks: Potential risks include delays in project execution, regulatory changes, and market volatility affecting commodity prices.

Conclusion

KAB’s strategic pivot to sustainable energy solutions has yielded significant financial benefits, positioning the company for continued success. With a strong start to FY2024 and a focus on expanding its SES offerings, KAB is an attractive investment opportunity. Our PE-derived TP of MYR0.50 reflects confidence in KAB’s growth prospects and market positioning. Maintain BUY.