Investment Highlights

• We maintain BUY on Malakoff with an unchanged fair value of RM1.10/share (WACC: 7.5%). Malakoff is currently trading at FY20E PE of 12.3x and FY21F PE of 12.2x.

• Malakoff’s dividend yields are expected to be attractive at 7.1% for FY20E and 7.7% for FY21F. Gross DPS are estimated to be 6.5 sen in FY20E and 7.0 sen in FY21F.

• Malakoff’s 9MFY20 results were within our forecast but slightly above consensus. Malakoff’s core net profit (eximpairment loss of RM18.5mil) rose by 43.4% YoY to RM263.4mil in 9MFY20 due to: (1) the absence of major repairs and maintenance expenses at the TBE (Tanjung Bin Energy) power plant; (2) a higher share of net profits in associates; and (3) maiden contribution from Alam Flora.

• Recall that Malakoff carried out a 73-day scheduled maintenance outage and rectification works at TBE from 31 March to 12 June 2019.

• Malakoff’s share of net profit in associates surged to RM141.0mil in 9MFY20 from RM44.4mil in 9MFY19 as the group’s effective stake in the Shuaibah assets (mainly water and electricity companies in Saudi Arabia) swelledto 24% from 12%.

• Alam Flora recorded a net profit of RM42mil or 15.9% of Malakoff’s core net profit of RM263.4mil in 9MFY20. Alam Flora is expected to generate a net profit of about RM60mil in FY20E.

• Comparing 3QFY20 against 2QFY20, Malakoff’s core net profit shrank by a sharp 45.7% QoQ to RM57.0mil in 3QFY20 in the absence of settlement proceeds from General Electric (GE) and higher operation and maintenance expenses at the TBP and TBE power plants.

• There were planned outages at the TBP (Tanjung Bin) and TBE power plants in 3QFY20. The loss of income resulting from the planned outage at TBE was RM42mil in 3QFY20. Due to the planned outages, equivalent availability factors (EAF) at TBE dropped to 88% in 3QFY20 from 94% in 2QFY20 while EAF at TBP fell to 85% in 3QFY20 from 94%.

• Most of Malakoff’s capacity payments come from TBE and TBP in 9MFY20. TBE accounted for 29.0% of Malakoff’s capacity payments in 9MFY20 while TBP made up a larger 47.6%. The balance 23.4% of the capacity payments in 9MFY20 came from the Prai, Segari and GB3 power plants.

Source: AmInvest Research - 25 Nov 2020