KUALA LUMPUR: KNM Group Bhd
's Peterborough waste-to-energy project in the UK is gaining traction following the award of a three-year £346mil (RM1.9bil) contract to China-based Western Power Industrial Co Ltd, said Maybank Investment Bank Research.
The research firm had on Wednesday maintained a Hold call with an unchanged target price of 25 sen, based on 0.5 times net tangible asset (NTA).
The contract based on a deferred payment scheme is to build a 36MW (net) energy from a waste power plant for its Peterborough Green Energy project. Work is to start in the first quarter of 2018 with the plant scheduled to start operations in Q1 of 2021.
"We are finally seeing progress in this project, which has been talked about since 2012. Financing had been a major stumbling block in the past. Considering that this is akin to a PFI-equivalent scheme project, KNM is accelerating its expansion, from an earlier planned 18MW to a 36MW capacity plant now.
"Given the land size, this modular plant is designed to reach an optimal 80MW. While this is sentiment positive, execution is key over the next three years," it said.
Maybank Research said based on preliminary assessment, this project: (i) offers a 10% internal rate of return (IRR), based on a 25-year tenure cycle and (ii) could potentially generate net profit of £14mil to -£25mil (RM77mil to RM135mil) per annum to KNM in 2021-2025, based on its 80% stake, £370mil capex and 85% capacity utilisation.
"The derived NPV for this job alone is about 27 sen a share, based on 9% weighted average cost of capital. Should KNM deliver to expectation, this is a major catalyst to the group in becoming a formidable renewable energy play,” it said.
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