Investment Highlights

• We maintain BUY on Malakoff with an unchanged fair value of RM1.00/share (WACC: 7.6%). Malakoff is currently trading at an FY20F PE of 17.5x. We have forecast a gross DPS of 5 sen each for Malakoff in FY19E and FY20F. This translates into a decent dividend yield of 5.6% for each year.

• Malakoff’s 9MFY19 core results were within our expectations and consensus estimates. Included in Malakoff’s 3QFY19 reported net profit was a RM30mil gain on remeasurement of existing investments in the Shuaibah assets in Middle East.

• Although Malakofff would be losing earnings from MacArthur Wind Farm in FY20F, we believe that this would be compensated by higher interest income from the disposal proceeds and increase in the share of net profit in associates. Hence, we are not revising Malakoff’s FY20F net profit yet. We have not accounted for the disposal of MacArthur Wind Farm in Malakoff’s FY20F net profit.

• We forecast Malakoff’s share of net profit in associates to increase by more than 5% in FY20F. The acquisition of an additional 12% effective stake in the Shuaibah assets in the Middle East was completed in September 2019.

• The A$356.9mil disposal of MacArthur Wind Farm is expected to be completed in 1QFY20. MacArthur Wind Farm accounted for RM56.6mil or 20.6% of Malakoff’s reported net profit in FY18.

• After a weak 2QFY19, which was dragged by losses at 40%-owned Kapar Energy Ventures (KEV) power plant and a high effective tax rate of 47.7%, Malakoff’s core net profit rebounded by 23.4% to RM64.5mil in 3QFY19.

• Malakoff’s share of losses at KEV declined to RM15.5mil in 3QFY19 from RM19.8mil in 2QFY19. Comparing 9MFY19 against 9MFY18 however, Malakoff’s share of losses at KEV widened to RM42.4mil from RM32.9mil. We understand that KEV is facing operational issues as it is an old power plant.

• Malakoff’s effective tax rate slid to 18.9% in 3QFY19 from a high 47.7% in 2QFY19. Malakoff’s effective tax rate was 34.4% in 9MFY19 vs. 43.0% in 9MFY18. Malakoff’s effective tax rate is high as certain expenses are not tax-deductible.

• TBE (Tanjung Bin Energy power plant) is back on track after a 73-day shutdown (from 31 March to 12 June 2019) for maintenance and rectification works. TBE’s equivalent availability factor rose to 96% in 3QFY19 from a low 14% in 2QFY19. Energy payments climbed to RM254.6mil in 3QFY19 from RM37.2mil in 2QFY19. TBE accounted for 29.6% of Malakoff’s capacity payments (2QFY19: 28.3%) and 21.2% of energy payments in 3QFY19 (2QFY19: 3.2%).

Source: AmInvest Research - 21 Nov 2019