Investment Highlights

• We maintain HOLD on Malakoff Corporation with an unchanged DCF-based fair value of RM0.90/share (WACC: 7.5%). Malakoff is currently trading at FY22F PE of 11.0x and FY23F PE of 10.2x. FY22F dividend yield is forecast to be 8.0%.

• In the long term, Alam Flora and renewable energy, particularly rooftop solar projects, are anticipated to reduce Malakoff’s exposure to coal and alleviate its ESG risk. Alam Flora and Malakoff’s associates in the Middle East are estimated to account for about 67.2% of the group’s FY22F pre-tax profit. However in terms of power generation capacity, coal is still significant as it accounts for more than half while gas and renewables make up the balance.

• We believe that Malakoff would continue securing rooftop solar projects in FY22F. Also in FY22F and FY23F, about 24.8MW of rooftop solar projects would be completed. As Malakoff would be the owner of the solar panels, earnings contribution is expected to be in the form of tariffs less maintenance expenses. Due to the small size at 24.8MW, we do not envisage the earnings contribution to be large.

• We forecast Alam Flora’s net profit to be flat at RM110.0mil in FY22F. Under the concession segment, we believe that the volume of waste handled would be the same at about 1.1mil tonnes per year. Waste handled under the non-concession segment e.g. sanitisation and recycling projects, is envisaged to be stagnant at about 880,000 tonnes per year. Non-concession business is estimated to account for 20% of Alam Flora’s net profit.

• Alam Flora’s earnings growth is also expected to be supported by new projects such as the integrated ecorecovery plant in Klang. Construction of the RM140.0mil plant started in December 2021. Upon completion, it would be handling commercial waste from ports and vessels.

• We believe that Malakoff would be bidding for waste-toenergy (WTE) projects in FY22F. We reckon that the bidding process for WTE plants in Pahang, Kedah and Terengganu would be launched in FY22F. Malakoff submitted bids for WTE plants in Johor and Melaka in FY21. We estimate the cost of a WTE plant to be between RM13/MW and RM15/MW.

• The PPA of Malakoff’s GB3 power plant is envisaged to expire at the end of FY22F. We do not think that the PPA would be extended. We reckon that the equipment and machineries of the plant would most likely be sold off. GB3 accounted for 10.7% of Malakoff’s capacity payments in 9MFY21. We have already excluded GB3 from Malakoff’s FY23F net profit.

Source: AmInvest Research - 24 Jan 2022