Investment Highlights

• We maintain BUY on Malakoff Corporation with an unchanged DCF-based fair value of RM1.10/share (WACC: 7.5%). Malakoff is currently trading at a FY21F PE of 12.8x.
• We have raised Malakoff’s FY20E gross DPS to 6.5 sen (FY19: 6.5 sen) from 5.5 sen. Our gross DPS forecast of 6.5 sen implies an attractive yield of 6.8% and payout of 88%. Malakoff declared an interim gross DPS of 2.8 sen in 1HFY20 (1HFY19: 2.4 sen).
• We forecast Malakoff’s core net profit (ex-FY19’s exceptional items of RM153mil) to surge by 116.8% to RM362.2mil in FY20E, underpinned by a turnaround in the share of earnings in the associates and maiden contribution from Alam Flora. Alam Flora is estimated to account for RM60mil or 16.6% of Malakoff’s FY20E net profit of RM362.2mil.
• We believe that Malakoff would be bidding for waste-toenergy plant projects, which were announced by the Minister of Housing and Local Development in July 2020. We gather that the ministry aims to have at least six wasteto-energy plants to be built nationwide by 2025F. Some of these plants are expected to be in Sungai Udang, Melaka, Samling, Selangor and Bukit Payong, Terengganu.
• Apart from these, Malakoff has bid for a solar power plant project under Malaysia’s LSS4 (large-scale solar scheme 4). Winners of the LSS4 will be announced in March 2021. The biggest capacity that a company can bid for is 50MW. Total capacity offered under the RM4bil LSS4 is 1.0GW.
• We view Malakoff’s forays into the renewable energy segments positively. Recall that early this year, Black Rock said that it would be exiting coal mining investments. We estimate that coal power plants account for 49.6% of Malakoff’s effective generation capacity currently (excluding associates).
• We understand that there has been a delay in the sale of the equipment and machinery of Port Dickson (PD) Power Plant (436MW) to Pacific Energy Company Ltd, Nigeria.We reckon that there was a delay in the dismantling and decommissioning works.
• We believe that the sale of the equipment and machinery would fetch about US$19mil. The net book value of PD Power Plant was RM65mil as at end-Dec 2019. Malakoff would only be selling the equipment and machinery as the land at Port Dickson belongs to the group. PD Power Plant’s PPA expired on February 2019.

Source: AmInvest Research - 24 Sept 2020