KPOWER: Power-Up To The Next Level

Around Q4 of last year, I came across news that a prominent figure became a new major shareholder of a company and its share price rose fiercely as a result.

The company was Kumpulan Powernet (KPower) and that person was the founder of Serba Dinamik Datuk Mohd Abdul Karim.

As I did not study Serba Dinamik much, apparently I did not know this person.

I decided to briefly look into KPower. Wow! The first thing I saw was that its share price has already gone up from 30sen to RM1.50 in 6 months, and the company was making loss without fail for the past few years.

Straight away, I lost any interest to study it further.

Once in a while we hear that some famous business persons or politicians bought shares in certain companies. So what?

When KPower released its FY20Q1 financial result on 28 May 2020, it caught my attention again.

Normally this type of so-so result of RM2.67mil net profit won't attract me but since so many companies were worse, I chose this company with increasing profit to read.

My interest in the company started to boil after I read the lengthy prospect in the financial report. It has been awarded 2 contracts worth RM500mil even in the MCO period.

Together with earlier contracts won not long ago in Nov19 amounting to RM300mil, it is a total of over RM800mil contracts for a company with annual revenue of less than RM10mil!

Then I checked the share price chart. It reached RM3 before MCO before dropping to RM1 level and now it's RM2.

Taking into consideration the contract sum and duration, as well as the private placement dilution, I roughly calculated the projected EPS of KPower and decided to make it the first share I bought after the MCO.

This week KPower won another contract worth RM174.5mil in Laos, which means overall it has exceeded the RM 1 billion mark.

KPOWER contracts

28/11/19 RM254.3mil: Nov19 - est Nov22 (KL) - sewerage + GBI building 

11/2/20 RM65mil (USD15.8mil): Feb20 - est Feb22 (Laos) - small hydropower plant

31/3/20 RM354mil: Mac20 - Dec24 (Perak) - 5x small hydropower plants

13/5/20 RM208mil (USD48mil): May20 - Feb23 (Nepal) -22.9MW small hydropower plant

29/6/20 RM174.5mil (USD40.7mil): est Aug20 - Aug22 (Laos) - 2x hydropower plants

27/8/20 RM192.7mil (USD46.2mil): Sep20 - Aug23 (Nepal) - 22MW hydropower

Total contracts RM 1,055.8 mil

Outstanding shares before private placement 83mil

29.32mil private placement (35%)

Total shares after private placement 112.32mil

Before Datuk Abdul Karim took over, KPower was involved in:

Property development

Just sell and then construct 6 units of shop offices in Sentul, to be completed within 2020.

Property investment

Rent out 36 units hostel to students in Liverpool UK, loss-making.

Textile manufacturing

Manufacture warp-knitted fabric, only about RM20+k sales a month, worse than Penang Char Koay Teow hawker. Loss-making.

After taken over by new management, KPower diversifies into construction related business which concentrates mainly on utility and energy segment.

We can have a glimpse on this from the most recent four contracts won, which are all small hydropower plants.

It has a plan to venture into renewable energy which includes solar energy in the future, especially those with a sustainable concession-based income.

For its loss-making property investment & manufacturing businesses, I think the new management will seek to dispose them. I hope they do so ASAP.

KPower's shares liquidity is quite low with only 83mil outstanding shares before the private placement. Approximately 85% are held by its 30 largest shareholders according to annual report 2019.

The decision to split the shares is a welcomed move to improve its shares liquidity.

KPower is reported to have a tender book of RM3bil, including RM1.2bil in the Middle East. So far it has not won any contract from Middle East yet, which is Datuk Abdul Karim's contract-generating region.

RHB recently initiated coverage for it with a target price of RM3.46, which is much higher than my first target of RM2.80 based on guesstimated FY21 net profit of RM31.5mil

Those contracts won are mostly EPC contracts which I think should fetch higher margin. It will be great if its net profit margin can mirror Serbadk's above 10% mark.

There is no doubt that KPower's revenue and profit will trend up in subsequent quarters. The newly installed dividend payout policy of at least 20% is a bonus.

While KPower looks good, it leads me to another company which looks even better.