KNM awards RM1.9 billion EPCC contract to China Western Power Industrial

KUALA LUMPUR: KNM Group Bhd, which awarded a £346 million (RM1.9 billion) contract to China Western Power Industrial Co Ltd (CWPC), expects its recurring income to expand up to 70% upon completion of its Peterborough Green Energy Project in the UK.

“The Thailand project is already operational and is already contributing to our recurring income … when Phase 2 of the UK project starts, our recurring income will be easily 70%,” KNM group CEO Lee Swee Eng told reporters at the signing ceremony today.

Group finance director Terence Tan (pix) said its Thailand operations will contribute 15-20% to recurring income next year. In the next three years, KNM will see completion of the expansion in Thailand and Phase 1 of the UK project, which will bring its recurring income to at least 50%. Phase 2 of the UK project will be completed thereafter.

“The ultimate projection we are looking at is a long-term recurring income about 70%. We are progressively increasing our recurring income stream,” he said. The projection excludes potential projects in the pipeline.

Today, KNM’s UK subsidiary Peterborough Green Energy Ltd awarded an engineering, procurement, construction and commissioning (EPCC) contract to Shenzen Stock Exchange-listed CWPC for a 36MW energy-from-waste power plant in the UK.

The contract is for 37 months and construction is expected to commence in the first quarter of 2018. The EPCC contractor will finance the project for a period of five years.

“This company is quite similar to KNM ... the only difference is that they are much bigger than us and are cash-rich. This project has two phases, so we are talking about Phase 1 first but there is a future Phase 2 for which we will give them the first right of refusal if they do well. There is also potential partnership in the whole of UK and Europe between us, to look into renewable energy,” said Lee.

Tan said the funding of the project will not affect its gearing as it has been arranged in the form of a deferred payment scheme. Its gearing level is at 0.6 times now.

“Of course the gearing will come in when there is refinancing in year five on the repayment. By that time there shouldn’t be any issue because we have a matching on our income and our gearing at the same time. Furthermore we are referring to five years. We will actually have two years already in operations generating income,” he said.

“At the end of the day, after two years of operation, we can decide many ways how to refinance it. We can even consider an initial public offering in the UK. We have plenty of time to decide,” said Lee.

KNM’s first international renewable project is a bio-ethanol plant in Thailand, which is being expanded from a capacity of 200,000 litres per day (LPD) to 500,000 LPD. In the US, it is seeking financing for a project that converts waste tyres to carbon black.

“We are looking at other renewable energy projects in Thailand, the UK, Indonesia and Malaysia. These are waste-to-energy projects. In Malaysia we are looking at conversion of palm kernel cake into ethanol and animal feed, municipal waste to energy and scheduled waste to power. In Thailand we are looking at municipal waste to power,” said Lee.

KNM has an order book of RM2 billion to RM2.5 billion, which will last them about two years. Its share price fell 3.45% to close at 28 sen today with a total of 51.57 million shares traded and a market capitalisation of RM597.18 million.