KUALA LUMPUR (Aug 4): Engineering solutions provider Kawan Renergy Bhd, which is also an independent power producer involved in power generation and the sale of electricity, is seeking an initial public offering (IPO) on the ACE Market of Bursa Malaysia to raise funds for its investment in a new 2MW power plant, among others.

According to its draft prospectus published on the local bourse's website, the proposed IPO will comprise 110 million new shares and 34.5 million existing shares to be put up for sale by way of private placement — of which 5.5 million will be offered to Bumiputera investors.

As for the new shares, 27.5 million will be made available for application by the Malaysian public, and 19.25 million for eligible directors and employees of the company, while the balance 63.25 million will be placed out to Bumiputera investors.

The company is expected to have an enlarged share capital of 550 million shares upon listing, from 440 million before that. 

Besides power generation, Kawan Renergy — through its subsidiaries — is primarily involved in the design, fabrication, installation and/or commissioning of industrial process equipment (such as heat exchangers, pressure vessels, boilers and heaters), process plants (focusing on food processing, oleochemical and chemical processing, and waste recovery), as well as renewable energy and co-generation plants.

The group made a profit after tax of RM14.23 million for the financial year ended Oct 31, 2022 (FY2022), more than double the RM6.88 million it made in FY2021 — and over three times the RM4.43 million netted in FY2020 — as the group's revenue jumped to RM139.18 million in FY2022, from RM64.04 million in FY2021, and RM48.82 million in FY2020.

Its main revenue contributor was "design, fabrication, installation and/or commissioning solutions", which made up the entire revenue for Kawan Renergy from FY2020 to FY2022.

The power generation and sale of electricity business only began contributing to its revenue in FY2022, when it acquired Magenko Group in August 2022. Hence, its contribution was minimal at RM41,000 — which was less than 0.1% of its total revenue for FY2022.

The company's profit after tax margin, which grew from 9.1% in FY2020 to 10.7% in FY2021, was last at 10.2% in FY2022. Kawan Renergy does not presently have any fixed dividend policy.

The bulk of its sales came from its local businesses, while export sales contributed just 13.9% of its revenue in FY2020, 5.5% in FY2021, and 11.9% in FY2022. "Nonetheless, it should be noted that the physical deliveries of our group’s solutions are within Malaysia,” the engineering solutions provider said.

Besides raising funds for the new 2MW power plant, Kawan Renergy plans to use proceeds from the IPO to expand its working capital for its ongoing and future co-generation plant projects, to buy additional machineries, repay bank borrowings, and to improve output at its Bercham plant — which has an installed capacity of 1.2MW and a net export capacity of 1MW.

Kawan Renergy is currently controlled by its co-founder and managing director Lim Thou Lai, who holds 96% of the company's shares, while executive director Chong Hon Choong has 1.4%, and ED Heng Siew Aun has 1.1%. Post IPO, Lim's stake will be trimmed to 70.5%, while Chong's will be reduced to 1.2%, and Heng's may rise to 2% if she subscribes to her entitlements under the Pink Form allocations.

M&A Securities is the principal adviser, sponsor, underwriter and placement agent for the IPO.