Investment Highlights

• We maintain HOLD on Malakoff with an unchanged DCFbased fair value of RM0.95/share (WACC: 7.5%). Malakoff is currently trading at an FY22F PE of 12.2x. Dividend yields are forecast at 6.7% for FY21E and 6.9% for FY22F.

• Presently, Malakoff is focusing on rooftop solar and waste management projects in the renewables segment. Malakoff plans to achieve 1,000MW of renewable energy capacity by FY25F compared with 36MW currently. The group’s target is to increase its capacity by 250MW every year.

• So far in FY21E, Malakoff has signed agreements for 22.3MW worth of rooftop solar projects with AEON Co Taman Maluri, Pos Malaysia, Northport, Johor Port and the DRB-Hicom group of companies. The rooftop solar systems would be owned by Malakoff upon completion and as such, they would be included in Malakoff’s renewable energy targets.

• We do not expect earnings contribution from the rooftop solar projects to be significant due to their small size. Most of the rooftop solar projects are expected to be completed in FY22F.

• We forecast Alam Flora’s net profit to improve by more than 20% to RM110.0mil in FY21E on the back of higher volumes of waste management. Alam Flora is expected to account for 34.6% of Malakoff’s FY21E net profit of RM317.5mil.

• Alam Flora is expected to start the construction of the integrated eco-recovery complex in Klang at the end of FY21E. We believe that the complex would cost about RM40mil in total and would take roughly 1.5 to two years to complete. Alam Flora has proposed to acquire the land from Media Prima for RM25.0mil.

• Upon completion, the plant would treat industrial and commercial waste such as those from ports and vessels. The aim is to expand Alam Flora’s non-concession business, which accounts for 20% of revenue and profits currently.

• Meanwhile, the PPA of the 640MW GB3 combined cycle gas power plant in Perak is expected to expire at the end of FY22F. GB3’s residual value was RM90.0mil as at endFY20. GB3 accounted for 10.7% of Malakoff’s capacity payments in 1HFY21. We do not think that the PPA would be extended as the country’s energy reserve margin is expected to be close to 50% when Edra Energy’s 2,242MW gas power plant is commissioned in 2H2021.

Source: AmInvest Research - 1 Oct 2021