Malakoff Corporation Berhad - Land Acquisition For RE Expansion

Date: 23/09/2020

Source  :  PUBLIC BANK
Stock  :  MALAKOF       Price Target  :  1.06      |      Price Call  :  TRADING BUY
        Last Price  :  0.895      |      Upside/Downside  :  +0.165 (18.44%)

Malakoff announced that its wholly-owned unit, Malakoff R&D Sdn Bhd, had entered into a Sale and Purchase Agreement (SPA) with Eksklusif Pesona Sdn Bhd (EPSB) to acquire a plot of freehold land for a purchase consideration of RM150m. The total land area measuring approximately 71.44 hectares is located in Mukim Pulau Sebang, Daerah Alor Gajah, Melaka. While we are positive on the land acquisition as an integral part of the Group’s future development of renewable energy (RE) power plants, the price tag appears to be relatively expensive as compared to average plantation land cost in Malaysia though there are mitigating factors with regard to its RE-related capital expenditure in the future. We maintain our forecast for now, pending more affirmative plans for the land. Our Trading Buy call on Malakoff is retained, with unchanged target price of RM1.06.

  • Proposed land acquisition. The 71.44-hectare land is planted with matured oil palm trees aged between 13 and 39 years and had produced over 710MT of palm oil fruit bunches for the past 3 years. The land is generally categorised as flat in terrain except for several areas which have elevations that are gently undulating. The owner of the land, EPSB, is a wholly-owned subsidiary of Tradewinds Plantation (TPB) with Tan Sri Dato’ Seri Syed Mokhtar Shah as its majority shareholder. The acquisition is targeted for completion in 4QFY20.
  • Rationale. The proposed land acquisition is for the potential future development of RE power plants including but not limited to large-scale solar, waste to energy (WTE), biomass and biogas power plants. This is in-line with the Government’s plans to have at least six WTE plants built nationwide by 2021.
  • The acquisition price appears expensive, translating to a price/planted ha of RM2.1m/ha (based on acquisition price of RM150m), compared with United Malacca’ sale of its Melaka and Negeri Sembilan plantation lands of 1,021 ha at c.RM171k/Ha in January 2017. Nevertheless, we understand that the land is close to two injection points for electricity transmission i.e. within the site or via direct connection to the nearby substations. In addition, the land is largely flat, hence could minimize future capex for land clearing and is easily accessible from the North South Expressway (NSE) for the delivery of major equipment for future project development.
  • Financial impact. The price tag of RM150m which was derived based on willing-buyer willing-seller basis will be funded via internally generated funds and/or external borrowings. As for balance sheet impact, Malakoff has substantial cash and cash equivalents of RM5.3bn as of 2QFY20. However, any additional debt would increase FY20F net gearing from 1.01x to 1.04x. Based on our preliminary calculation, the land size could build at least 44MW of solar power plant, with capex of RM176m and could generate a profit of ~RM5m/year (based on tariff of 20 sen). Meanwhile, the cost to develop a WTE was estimated around RM500m.

Source: PublicInvest Research - 23 Sept 2020

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