Investment Highlights

• We maintain BUY on Malakoff with a higher fair value of RM1.10/share (WACC: 7.5%) vs. RM1.06/share previously. We like Malakoff for its decent FY20E dividend yield of 5.8%.
• Malakoff has declared an interim gross DPS of 2.8 sen for 1HFY20 (1HFY19: 2.44 sen). For the full year, we are forecasting a gross DPS of 5.5 sen (FY19: 6.5 sen). For FY21F, we are expecting a gross DPS of 6.0 sen, which translates into a yield of 6.3%.
• Malakoff’s annualised 1HFY20 results were 41.2% above our estimates and 21.5% ahead of consensus. We have raised Malakoff’s FY20E net profit by 41.4% to account for higher operating income and share of net profit in associates.
• Malakoff’s other income surged by 112.1% to RM56.5mil in 1HFY20 from RM26.6mil in 1HFY19. We believe that the increase in other income in 1HFY20 was partly due to a settlement agreement with General Electric in respect of Tanjung Bin Energy’s (TBE) previous plant outages.
• Also, Malakoff’s share of net profit in associates jumped by 248.4% to RM91.4mil in 1HFY20 from RM26.2mil in 1HFY19 on the back of higher earnings from the Shuaibah assets (water and electricity company in Saudi Arabia) and absence of impairment losses in Kapar Energy Ventures power plant.
• There was zero earnings recognition from Kapar Energy Ventures in 1HFY20 as Malakoff had fully impaired its investment in the company. In comparison, Malakoff’s share of net loss in Kapar Energy Ventures was RM26.8mil in 1HFY19. Malakoff acquired an additional effective interest of 12% in the Shuaibah assets in September 2019.
• Malakoff recorded its maiden contribution from Alam Flora in 1HFY20. Alam Flora registered net earnings of RM28.0mil in 1HFY20, which was 14.4% of group net profit.
• Comparing 2QFY20 against 1QFY20 however, Malakoff’s revenue dropped by 15.1% to RM1.5bil due to lower energy payments and electricity despatch to Tenaga Nasional (TNB). Energy payments shrank by 25.4% QoQ to RM737.7mil in 2QFY20. Capacity payments inched down by 2.1% QoQ to RM511.2mil in 2QFY20 due to outages at the Prai power plant.
• Most of Malakoff’s capacity payments in 1HFY20 came from the Tanjung Bin power plant (TBP) and TBE power plant. TBP accounted for 64.7% of Malakoff’s capacity payments in 1HFY20 while TBE made up another 24.1%.

Source: AmInvest Research - 19 Aug 2020