Investment Highlights

• We affirm HOLD on Malakoff with a lower DCF-based fair value of RM0.90/share vs. RM0.95/share previously (WACC: 7.5%). We have reduced Malakoff’s FY22F net profit by 3.5% to account for a higher effective tax rate resulting from the prosperity tax in Malaysia. We ascribe a three-star ESG rating to Malakoff.

• Malakoff is currently trading at FY22F PE of 11.7x and FY23F PE of 10.9x. We forecast Malakoff’s FY21E gross DPS to be 5.5 sen, which translates into a yield of 7.3%.

• Malakoff’s annualised 9MFY21 net profit was within our forecast and consensus estimates.

• Malakoff’s core net profit (ex-impairment on financial assets of RM18.4mil) was relatively flat YoY at RM263.8mil in 9MFY21.

• Although Alam Flora’s net profit climbed by 54.2% YoY to RM99.5mil in 9MFY21, Malakoff recorded higher depreciation and effective tax rate. Malakoff’s depreciation rose by 2.6% YoY to RM680.3mil in 9MFY21. Effective tax rate increased to 31.7% in 9MFY21 from 24.7% in 9MFY20 as certain expenses were not tax deductible,

• Alam Flora’s net profit expanded by 54.2% YoY to RM99.5mil in 9MFY21 supported by higher non-concession earnings. Alam Flora’s net profit margin rose to 16.2% in 9MFY21 from 10.6% in 9MFY20. Alam Flora accounted for 37.7% of Malakoff’s core net profit in 9MFY21.

• Comparing 3QFY21 against 2QFY21, Malakoff’s core net profit plunged by 40.8% to RM73.4mil.

• Malakoff was affected by a 6.5% decline in the share of net profit in associates and provisions for slow-moving stocks for certain gas plants, which are nearing the end of their PPAs (power purchase agreement). We believe this to be the GB3 power plant, which is expected to expire at the end of FY22F. GB3 accounted for 10.7% of Malakoff’s capacity payments in 1HFY21.

• Share of net profit in associates (mainly Shuaibah assets in the Middle East) slid by 6.5% QoQ to RM57.5mil in 3QFY21 due to higher operating and maintenance expenses.

• There were minimal plant outages in Malakoff’s power plants in Malaysia in 3QFY21. Equivalent availability factor (EAF) at the TBP power plant was 96% in 3QFY21 while TBE’s EAF was 100%.

Source: AmInvest Research - 29 Nov 2021