KEEN to Explore Renewable Energy Market
Renewable Energy Company Steady Income amid Uncertainty
• PT Kencana Energi Lestari Tbk (KEEN) is renewable energy provider, operating hydropower plants in two regions, North Sumatra and Bengkulu, namely PLTA Pakkat and PLTA Air Putih through its subsidiaries, PT Energi Sakti Sentosa and PT Bangun Tirta Lestari, respectively.
• In 1H22, KEEN posted a revenue of USD20.36 million or rose +11.85% YoY (vs USD18.21 million in 1H21).
• In terms of multiples valuation, KEEN is currently trading at 1.31x PBV (trailing), a relatively lower than its peer's average (1.63x PBV) and median (1.39x PBV).
EBT Business Expansion
In line with the development of green energy, KEEN continues to increase its energy capacity to 200 MW up to FY25F (vs currently 64 MW). The company plans to build three hydropower plants in FY23F, namely: 1) PLTA Pakkat 2 in North Sumatra (35 MW); 2) Kalena hydropower plant in South Sulawesi (75 MW); 3) Salu Uro hydropower plant in South Sulawesi (90 MW). To realize the projects, the company has prepared a capex of USD500 million up to FY25F.
Road to Net Zero Emission FY60F
•The government has planned to do an energy transition from fossil fuel to green energy and create a healthy environment. The government is targeting Net Zero Emission in FY60F, with several steps have been taken to accelerate the development of renewable energy, through Presidential Decree No. 112 of 2022 released on Sep-22. The government has also provided space for PLTUs to operate until 2050 in industrial areas, which will then be replaced with EBT.
•The government plans to apply a carbon tax for steam power plants, with the minimum tariff be IDR30,000 per tons of CO2 equivalent. However, the implementation of this policy is still postponed until FY23E (previously planned for Jul-22) while taking into consideration of the economic conditions.
•We assess the government will continue to carry out a gradual policy to smoothen the implementation of green energy in order to create Net Zero Emissions. Thus, renewable energy companies like Hydropower are potentially to be prospective in the future.
Recommendation BUY for KEEN with TP: IDR1,080
We initiate coverage on KEEN IJ with a BUY call and a target price of IDR1,080 (+30% upside), which implies 1.55x PBV and 10.29x EV/EBITDA in FY22E. KEEN is currently trading close to -0.5STD PBV of 3 years historical mean. We expect KEEN to gain a positive momentum with the development of NRE in Indonesia along with the government's plan of reducing the use of PLTU for net zero carbon by FY60F, as well as the company’s capability to achieve stable earnings amid economic uncertainty. Downside risks to our call include: 1) dependence on PLN as the sole customer; 2) increase in the cost of hydropower development; 3) decrease in water intensity during the dry season.
MNCS Research
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