Investment Highlights

• We are keeping our BUY recommendation on Malakoff with an unchanged fair value of RM1.00/share (WACC: 7.6%). Malakoff is currently trading at an FY20F PE of 17.0x.

• We are keeping our FY20F net profit for Malakoff. We believe that the loss of earnings from the potential disposal of a 50% stake in Macarthur Wind Farm, Australia, would be partly compensated by earnings from the acquisition of a 12% effective stake in the Shuaibah assets. The Shuaibah assets are located mainly in Saudi Arabia.

• Macarthur Wind Farm is estimated to account for 10% to 12% of Malakoff’s net profit. On the other hand, the increase in Malakoff’s stake in the Shuaibah assets is expected to improve the group’s net profit by 9% to 11%. The proposed disposal of the 50% stake in Macarthur Wind Farm may take place in 4QFY19. The selling price was reported to be more than A$500mil.

• Malakoff’s acquisition of an additional 12% effective stake in the Shuaibah assets for US$70mil (RM289.8mil) was completed in September 2019. Hence, Malakoff’s effective stake in the Shuaibah assets has increased to 24% from 12%.

• Earnings contribution from the increased shareholding in the Shuaibah assets are expected to come in 4QFY19. However, we are not revising Malakoff’s FY19E net profit as the impact is insignificant. Malakoff’s share of net profit in the Shuaibah assets was RM19.7mil in 1HFY19 based on an effective shareholding of 12%.

• We understand that there have not been issues with Tanjung Bin Energy Power Plant (TBE) after the 73-day shutdown (from 31 March to 12 June 2019) for maintenance and rectification works. As such, we reckon that TBE would no longer be hampered by unplanned outages, which would hit capacity payments.

• This also means that TBE is on track towards achieving the unplanned outage rate of 6% (UOR) by the end of FY19E compared with a high 13% in FY18. The UOR of 6% is the level stipulated in the PPA with Tenaga Nasional.

• We believe that negotiations over the tariff hike may be delaying the completion of Malakoff’s RM944.6mil acquisition of 97% of Alam Flora. Hence, we reckon that the proposed acquisition would take time to be completed.

• Currently, the targeted completion date of the acquisition of Alam Flora is 31 January 2020. We estimate that Alam Flora would improve Malakoff’s net profit by almost 10%. We have not included Alam Flora in our earnings forecast for Malakoff yet.

Source: AmInvest Research - 2 Oct 2019