Investment Highlights

• We maintain HOLD on Malakoff with an unchanged fair value of RM0.95/share (WACC: 7.5%). We ascribe a threestar ESG rating to Malakoff.

• Malakoff is currently trading at FY21F PE of 13.0x and FY22F PE of 12.7x. We forecast Malakoff’s gross DPS to be 5.5 sen in FY21F, which translates into a yield of 6.5%.

• At first glance, Malakoff’s annualised 1QFY21 net profit appears to be below our expectations and consensus estimates. In spite of this, we are keeping Malakoff’s FY21F net profit forecast of RM316.8mil for now as earnings are expected to recover in 2QFY21 on fewer plant outages.

• Malakoff’s core net profit (ex-impairment of RM6.1mil) fell by 30.8% YoY to RM66.5mil in 1QFY21 dragged by higher operating and maintenance expenses and lower share of net profit in associates. There were planned outages at the TBE and TBP power plants in 1QFY21.

• TBE’s equivalent availability factor (EAF) dropped to 60% in 1QFY21 from 88% in 4QFY20. TBP’s EAF declined to 82% in 1QFY21 from 90% in 4QFY20.

• Malakoff’s revenue fell by 23.8% YoY to RM1,351.2mil in 1QFY21 on lower energy payments and a decline in electricity despatch from the Segari power plant.

• Share of net profit in associates (mainly Shuaibah assets in the Middle East) dived by 31.9% YoY to RM27.8mil in 1QFY21 due to outages at some of the water and power plants in the Middle East.

• Alam Flora’s net profit inched up by RM3mil YoY to RM18.0mil in 1QFY21. We forecast Alam Flora’s net profit to be relatively flat at RM57.0mil in FY21F. We believe that Alam Flora’s earnings would be supported by stable demand for sanitisation works in FY21F. Alam Flora accounted for 18.3% of Malakoff’s core net profit (excluding impairment of assets) in FY20.

• Most of Malakoff’s capacity payments come from the TBE and TBP power plants. TBE accounted for 46.3% of Malakoff’s capacity payments in 1QFY21 while TBP accounted for another 30.1%. The rest of Malakoff’s capacity payments came from the Prai, GB3 and Segari power plants.

Source: AmInvest Research - 20 May 2021