Malakoff Corporation Berhad - Earnings Cushioned By Associates

Date: 25/11/2020

Source  :  PUBLIC BANK
Stock  :  MALAKOF       Price Target  :  1.08      |      Price Call  :  TRADING BUY
        Last Price  :  0.815      |      Upside/Downside  :  +0.265 (32.52%)

Malakoff reported lower headline net profit of RM51m (-46% YoY) in 3QFY20. This was due to lower fuel margin and daily utilisation payment (DUP) at Tanjung Bin Power (TBP) as well as in the absence of gain on remeasurement of investment in Shuaibah of RM29.8m and deconsolidation of Macarthur Wind Farm. Net profit for 9MFY20 however increased 33% YoY to RM244.9m, which was at 81% and 73% of our and consensus full year estimates respectively. We raised our earnings for FY20-22F by 12% to account for better-than-expected associates’ performance. Our Trading Buy call on Malakoff is retained, with a slight upward revision in target price to RM1.08 (previously RM1.06). No dividend was declared during the quarter.

  • Lower energy payment. Revenue for 3Q20 declined 20% YoY to RM1.48bn (vs RM1.86bn in 3Q19), mainly due to a 95% decline in energy payment recorded by its gas-fired plant, Segari Energy Ventures (SEV), due to lower despatch factor as a result of lower demand. Besides, lower energy payment also recorded at both its coal-fired plants i.e. Tanjung Bin Power (TBP) (-14%) and Tanjung Bin Energy (TBE) (- 29%), following the decline in Applicable Coal Price (ACP). This is however partially offset by revenue contribution from the newly acquired subsidiary of Alam Flora. Meanwhile, 9M20 revenue dropped 15% YoY to RM4.76bn mainly due to lower energy payment from TBP and SEV.
  • Lower contribution from TBP, cushioned by associates. Its pre-tax profit for the quarter fell 51% YoY to RM67.6m, compared to RM139m in 3Q19. This was on the back of lower DUP at TBP, in line with the scheduled reduction in tariff effective 28 September 2019. Its earnings in 3Q20 was however cushioned by higher contribution from its associates (+173%), in the absence of losses from 40%-owned in Kapar Energy Ventures (KEV) following full impairment of the carrying amount of investment in December 2019 and higher contribution from Shuaibah IWPP subsequent to the completion of 12% additional stake in September 2019. Its effective tax rate was also lower at 10.4% in 3Q20, compared to 20.7% in 3Q19.
  • YTD 9M20, core net profit jump 33% YoY to RM245m (vs 9M20: RM184m) due to TBE settlement agreement with GE in 2Q20, lower O&M costs (-22% YoY) coupled with higher share of associates’ contribution (+217%).

Source: PublicInvest Research - 25 Nov 2020

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