Investment Highlights

• We maintain HOLD on Malakoff Corporation with an unchanged fair value of RM0.95/share (WACC: 7.5%). Malakoff is currently trading at FY21F PE of 13.0x and FY22F PE of 12.7x. We ascribe a 3-star ESG rating to Malakoff.

• We have reduced Malakoff’s gross DPS to 5.5 sen from 6.5 sen for FY21F. The gross DPS of 5.5 sen translates into a net dividend payout of 85% in FY21F vs. 87.0% in FY20. Dividend yield is 6.5% for FY21F.

• Overall, we expect Malakoff’s revenue to improve by 5.1% to RM6.6bil in FY21F due to higher energy payments from Tenaga Nasional (TNB). We reckon that the despatch of electricity from TNB would rise in FY21F in line with the increase in electricity demand. We believe that electricity demand in Peninsular Malaysia would recover by 6.0% in FY21F after falling by 5.0% in FY20.

• Alam Flora plans to expand its non-concession business – Alam Flora Environmental Solutions – to capitalise on growth opportunities in other types of waste such as industrial and hazardous waste. However, we believe that this would take time as Alam Flora would have to discuss or submit proposals to the relevant parties.

• In the meantime, we expect Alam Flora’s earnings to be flat at RM57mil in FY21F. As the number of Covid-19 cases stabilises in Malaysia, we believe that demand for sanitization and cleaning works would be flat in FY21F.

• The environmental solutions division (sanitization and cleaning works) accounts for about 20% of Alam Flora’s earnings while waste management accounts for another 80%. Alam Flora accounted for 19.9% of Malakoff’s reported net profit of RM286.6mil in FY20.

• Malakoff is expected to expand its portfolio of renewable assets in FY21F. The group submitted a bid for an 880 tonnes/day waste-to-energy plant in Johor recently.

• Currently, coal accounts for 58.5% of Malakoff’s effective domestic generating capacity (excluding overseas associates) while gas makes up another 41.5%. Although Malakoff has 69.7MW of renewable projects, these have not come onstream yet.

• The UOR (unplanned outage rate) of Tanjung Bin Energy (TBE) power plant is zero currently as it was reset in the beginning of the year after a period of five years. Recall that the threshold UOR level as stipulated by TNB is 6%.

Source: AmInvest Research - 13 Apr 2021