Investment Highlights

• Maintain HOLD on Malakoff with an unchanged DCF-based fair value of RM0.90/share (WACC: 7.6%). Our fair value of RM0.90/share for Malakoff implies an FY20F PE of 18x.

• Malakoff’s 1QFY19 results were within our expectations and consensus estimates. Although Malakoff’s 1QFY19 earnings appear to be strong, we are keeping our earnings forecast for FY19F. Malakoff’s performance in 2QFY19 may be affected by higher maintenance and replacement expenses for a scheduled outage at the Tanjung Bin Energy (TBE) power plant.

• Malakoff is carrying out scheduled outages at TBE from 31 March to 9 June 2019 to address the power plant’s operational issues. Recall that TBE was affected by a slew of issues in FY18, which resulted in a couple of unplanned outages.

• Malakoff’s net profit rose by 26.6% to RM67.0mil in 1QFY19 from RM52.9mil in 1QFY18. The YoY increase in net profit in 1QFY19 was due to improved contribution from the TBE power plant.

• Unlike 1QFY18, TBE was not affected by unplanned outages in 1QFY19. As such, the equivalent availability factor at TBE was a high 98% in 1QFY19 compared with 40% in 1QFY18. Capacity income at TBE climbed by 25.1% YoY to RM155.5mil in 1QFY19 while energy income increased by 174.8% to RM340.5mil.

• Although the Port Dickson (PD) power plant’s PPA (power purchase agreement) expired on 1 March 2019, Malakoff was not significantly affected. This is because PD Power accounts for less than 2% of Malakoff’s capacity payments.

• We believe that the TBE and Tanjung Bin Power (TBP) power plants account for the bulk of Malakoff’s capacity payments. The two accounted for 77.2% of the group’s capacity payments in 1QFY19.

• Malakoff’s share of net profit in associates was stable at RM16.5mil in 1QFY19. The associate earnings were driven mainly by Shuaibah Water & Electricity Company and Hidd Power Company in the Middle East.

• In respect of Malakoff’s proposed acquisition of Alam Flora Bhd for RM944.6mil cash, the completion date is expected to be in 2HFY19. On a full-year basis, we estimate that Alam Flora would improve Malakoff’s net profit by 10%.

Source: AmInvest Research - 28 May 2019