KUALA LUMPUR (Dec 30): Kawan Renergy Bhd (KL:KENERGY) is expected to see stronger order book replenishment, as rising gas tariffs could spur demand for co-generation solutions, analysts said.

In a research note, Apex Securities said higher gas facility base tariffs under Regulatory Period 3 (RP3) are likely to increase interest in co-generation systems as an alternative power source, particularly among industrial and mission-critical users.

Co-generation allows the use of thermal energy produced from power generation for on-site purposes. This would reduce usage of gas, which is typically consumed for heat generation in manufacturing facilities.

Expectations of better order book comes amid a stronger-than-projected FY2025, said Apex Securities, where core net profit was 16% higher than its forecast. 

"To cater to a more diversified customer base, Kawan Renergy spent RM7.4 million in capex during the quarter to upgrade its R&D capabilities and equipment," it said.

While near-term earnings may be weighed by seasonal factors such as the monsoon period and festive holidays, analysts expect activity to normalise from the second quarter as engineering work resumes.

“The group’s order book remains stable at RM108.2 million, predominantly supported by RE (renewable energy) and co-generation projects, providing earnings visibility into the financial year ending Oct 31, 2026 (FY2026),” PublicInvest Research said in its note to clients. 

Despite near-term headwinds, analysts highlighted a structural shift in the group’s earnings mix. Revenue from the renewable energy and co-generation segment surged sharply year-on-year, emerging as the main growth driver, while industrial segments are expected to remain steady.

Public Investment Bank maintained its 'outperform' call on the stock with a target price of 76 sen, with FY2026 earnings per share of 4.67 sen and price-to-earnings multiple of 16.3 times. 

Apex Securities has a more bullish price-to-earnings multiple of 19 times against FY2027 earnings per share forecast of 5.5 sen per share. The stock last traded at 65 sen per share.