• Malakoff Corporation announced that it has completed the disposal of its 50% stake in MacArthur Wind Farm in Australia to AMP Capital Core Infrastructure Fund.

• The selling price was reduced by 3.4% to A$344.7mil from A$356.9mil as the discount rate used to value the asset has risen.

• Malakoff said that the long-term fixed rate in Australia has increased following the steepening of the 3-month bank bill swap rate. No other details were given on the discount rate.

• We are neutral on the development as the reduction in the selling price is small. We estimate the gain on disposal to be RM511.4mil based on the revised selling price instead of RM546mil originally. Malakoff said that its cost of investment in MacArthur Wind Farm back in FY13 was A$130.3mil.

• We believe that Malakoff would be using the disposal proceeds of A$344.7mil (RM977.7mil) to repay borrowings. Malakoff’s gross borrowings stood at RM13.1bil as at end-September 2019 vs. RM15.2bil as at end-December 2018.

• We believe that the loss of earnings from MacArthur Wind Farm would be fully covered by lower interest expense from the repayment of borrowings or higher interest income from the disposal proceeds and earnings contribution from the Shuaibah assets.

• Earnings shortfall would also be covered by the acquisition of a 97.4% stake in Alam Flora Bhd. Malakoff completed the acquisition of an additional 12% stake in the Shuaibah assets in the Middle East in 3QFY19. Malakoff completed the RM869.0mil acquisition of a 97.4% stake in Alam Flora in early December 2019. Alam Flora is estimated to improve Malakoff’s net profit by 10% on a full-year basis assuming everything else is the same.

• We have not accounted for any of these in our FY20F net profit forecast for Malakoff.

• MacArthur Wind Farm contributed a revenue of RM163.4mil and net profit of RM56.6mil to Malakoff in FY18. The net profit of RM56.6mil was 20.6% of Malakoff’s reported net profit of RM274.4mil in FY18.

• Maintain BUY on Malakoff with a fair value of RM1.00/share.

Source: AmInvest Research - 19 Dec 2019