PublicInvest cuts Kawan Renergy earnings forecasts, lowers target price to 39 sen

KUALA LUMPUR: Public Investment Bank Bhd (PublicInvest) has cut its earnings forecasts for Kawan Renergy Bhd by as much as 35 per cent as the company's margin recovery takes longer than expected amid elevated operating costs.

Analyst Khairul Fahmi said the firm lowered its earnings forecasts by 17 per cent for financial year 2026 (FY26), 35 per cent for FY27 and 27 per cent for FY28.

PublicInvest maintained its "Neutral" call on Kawan Renergy but lowered its target price to 39 sen from 51 sen.

Kawan Renergy's core profit after tax and minority interest (Patami) rebounded 284.9 per cent quarter-on-quarter to RM1.9 million in the third quarter of FY26 (Q3 FY26), from RM500,000, as cost overruns on its Sabah power plant project eased and its project mix improved.

However, core Patami fell 78.0 per cent year-on-year, bringing its nine-month FY26 core profit to RM7.9 million.

This accounted for only 57.4 per cent of PublicInvest's full-year estimate and 48.7 per cent of the consensus forecast.

"While the sequential improvement indicates that project-related cost pressure in Sabah is subsiding, margin recovery has been slower-than-expected amid the elevated cost environment," Khairul said in a note.

Q3 FY26 revenue rose 1.4 per cent quarter-on-quarter and 32.6 per cent year-on-year to RM46.5 million, supported by a more balanced revenue mix.

Industrial process equipment revenue increased 45.7 per cent quarter-on-quarter and 2.6 per cent year-on-year to RM19.4 million, accounting for 41.8 per cent of total revenue.

Process plants revenue rose 29.5 per cent quarter-on-quarter and 17.7 per cent year-on-year to RM8 million.

Revenue from renewable energy and co-generation fell 27.5 per cent quarter-on-quarter to RM18.5 million following strong revenue recognition in Q2 FY26, although it remained 129.6 per cent higher year-on-year.

Khairul said stronger contributions from industrial process equipment and other higher-margin projects improved the group's project mix and profitability.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) rose to RM4.9 million from RM1.4 million in Q2 FY26, lifting its Ebitda margin to 10.6 per cent from 3.1 per cent.

The improvement was largely driven by easing cost overruns on the Sabah power plant project as additional works neared completion.

Nevertheless, Ebitda remained 60.1 per cent lower year-on-year as the company continued to face higher transportation, labour and material costs.

Kawan Renergy was also absorbing additional service tax charges on contracts signed before the expansion of the Sales and Service Tax regime.

Meanwhile, its effective tax rate rose to 60.8 per cent in Q3 FY26 and 39.1 per cent for the nine-month period, mainly due to losses at certain subsidiaries.

Khairul said these losses reduced consolidated profit before tax without a corresponding reduction in tax expenses, further weighing on net earnings.