Investment Highlights

• We maintain HOLD on Malakoff Corporation with an unchanged DCF-based fair value of RM0.95/share (WACC: 7.5%). Malakoff is currently trading at FY21F PE of 12.7x and FY22F PE of 12.4x. We ascribe a three-star ESG rating to Malakoff.

• We forecast a lower dividend payout for Malakoff of 85% in FY21F vs. 87% in FY20 (based on reported net profit). We believe that the group would be conserving cash for future acquisitions of renewable assets.

• Hence, we estimate gross DPS of 5.5 sen for FY21F (FY20: 5.1 sen) and 5.6 sen for FY22F, which translate into yields of 6.7% and 6.8% respectively. Currently, Malakoff has renewable assets of 69.7MW, which have not come onstream yet. Malakoff’s effective generating capacity (gas and coal) in Malaysia is about 5,822MW currently.

• Recall that Malakoff was privatised in 2007 and then, relisted in 2015 at an IPO price of RM1.80/share. Assuming a price of RM0.98, which is 20% above Malakoff’s current share price, we estimate that a privatisation exercise would cost RM2.9bil.

• GB3 power plant’s PPA (power purchase agreement) is expected to expire at the end of FY22F. Hence, there may be a loss of earnings in FY23F. We have already accounted for this in Malakoff’s FY23F net profit.

• GB3 accounted for 10.7% of Malakoff’s capacity payments and 0.8% of energy payments in 1QFY21. We believe that Malakoff would be selling the machineries and equipment of the GB3 power plant to overseas parties like PD power plant. PD power plant’s PPA was not renewed after it expired in FY19.

• Alam Flora is expected to provide recurring income to Malakoff. We believe that Alam Flora would continue to be a beneficiary of sanitization and cleaning works especially during the current Covid-19 outbreak. We forecast Alam Flora’s net profit to be unchanged at RM57mil in FY21F. The environmental solutions division (sanitization and cleaning works) accounts for about 20% of Alam Flora’s earnings while waste management makes up 80%.

Source: AmInvest Research - 14 Jun 2021