Investment Highlights

• We maintain BUY on Malakoff Corporation with an unchanged DCF-based fair value of RM0.75/share (WACC: 7.5%). This implies a FY25F PE of 13.6x, which is marginally below the 2-year average of 14x. We ascribe a neutral 3-star ESG rating to Malakoff.

• We believe that Malakoff would swing into the black in FY24F in the absence of fuel margin losses, asset impairments and losses in associates. Recall that Malakoff’s fuel margin losses amounted to RM564mil in FY23 while impairments for its 40%-owned associate, Al- Hidd, totalled RM96mil.

• As coal prices have stabilised, we think that Malakoff would be recording fuel margin gains in 1QFY24 instead of losses. Malakoff’s fuel margin gains were RM155mil in 4QFY23. Incidentally so far, there has not been any major forced outage at the 1,000MW TBE (Tanjung Bin Energy) and 2,100MW TBP (Tanjung Bin Power) plants. Unforced outage rate at TBE is below the threshold level of 6% currently.

• Prai Power Plant’s power purchase agreement (PPA) will expire in June 2024. We have already accounted for the loss of Prai in Malakoff’s FY25F net profit. The 350MW Prai Power Plant accounted for 8.1% of Malakoff’s capacity payments in FY23.

• We think that Malakoff would be applying to extend Prai’s PPA. If the PPA is not extended, Malakoff may sell the machinery and equipment of the power plant. Malakoff is currently looking for a buyer for GB3, which expired at the end of FY22. When the 440MW PD Power Plant’s PPA expired in FY19, Malakoff sold the plant’s turbines and generators to a company in Nigeria for RM73.3mil in FY21.

• Malakoff plans to secure 30MW of rooftop solar projects in FY24F. Currently, the group has 40MW of solar assets in its portfolio. Malakoff has also bidded for LSS5 projects. The request for proposals (RFP) for LSS5 (2,000MW worth of projects) closes on 25 July 2024. We believe that the winners will be announced in 1Q2025.

• We think that the winner of Melaka’s waste-to-energy (WTE) power plant would be announced in 2H2024. We reckon that Malakoff is the front-runner to win the tender.

• Malakoff is currently trading at an attractive FY25F PE of 12x, which is below its 2-year average of 14x. The group’s dividend yield is also compelling at 7.6% for FY24F.

Source: AmInvest Research - 7 May 2024