Investment Highlights

• We maintain HOLD on Malakoff with a lower fair value of RM0.95/share (WACC: 7.5%) vs. RM1.00/share previously. We have reduced Malakoff’s FY21F net profit by 3.3% to account for higher operating and maintenance expenses. We think that there would be higher-than-expected scheduled outages at Malakoff’s power plants in FY21F.

• Malakoff has not declared a final gross DPS. The announcement of the final dividend for FY20 will only be made after the release of the audited statements in March 2021.

• Based on the core net profit of RM311.2mil, we think that Malakoff’s FY20 gross DPS would be 6.4 sen compared to our original forecast of 6.5 sen. The gross DPS of 6.4 sen implies a final DPS of 3.6 sen in 4QFY20. For FY21F, we have forecast a gross DPS of 6.5 sen, which translates into a yield of 7.8%.

• Malakoff’s FY20 core net profit of RM311.2mil (excluding impairments of RM24.7mil) was 6.7% below our forecast and consensus. This was due to a higher-than-expected tax rate and drop in earnings of the associates in 4QFY20.

• Malakoff’s core net profit fell by 16.1% QoQ to RM47.8mil in 4QFY20. Effective tax rate surged to 31.1% in 4QFY20 from 10.4% in 3QFY20 while share of net profit in associates (mainly Shuaibah assets in the Middle East) slid by 38.1% to RM30.7mil.

• Comparing FY20 against FY19, Malakoff’s core net profit climbed by 86.3% to RM311.2mil on the back of higher share of net profit in associates, contribution from Alam Flora and fewer shutdowns at the TBE power plant.

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

• We believe that a third of Malakoff’s capacity payments came from TBE in FY20 while close to 50% came from the TBP power plant. The balance 20% of the capacity payments came from the smaller power plants such as GB3 and Segari.

• Share of net profit in associates rose to RM171.8mil in FY20 from a loss of RM21.6mil in FY19 in the absence of impairments for Kapar Energy Ventures and as Malakoff increased its effective stake in the Shuaibah assets in the Middle East to 24% from 12% in FY19.

• We believe that Alam Flora recorded a net profit of RM56mil to RM60mil in FY20, which accounted for 18% to 19% of Malakoff’s core net profit of RM311.2mil.

Source: AmInvest Research - 22 Feb 2021