Investment Highlights

• We upgrade Malakoff to BUY from HOLD with a lower DCFbased fair value of RM0.79/share (vs. RM0.90/share previously) (WACC: 7.5%). We have reduced Malakoff’s fair value to account for lower earnings from the TBE power plant resulting from a forced outage. We ascribe a 3-star ESG rating to Malakoff.

• We are upgrading Malakoff as we believe that the 11.9% fall in its share price has already reflected the operational risks of the TBE power plant. TBE experienced forced outages from 3 November 2021 to 13 February 2022 due to damages in the blades of the turbine.

• We forecast Malakoff’s core net profit (excluding impairment losses on financial instruments) to improve by 1.5% to RM280.7mil in FY22F on the back of fewer forced outages and lower provisions and write-offs of assets.

• The TBE power plant resumed operations in mid-February. While waiting for new blades to arrive from Germany in September or October this year, the existing blades have been modified so that the power plant can run smoothly. Malakoff is currently discussing with the insurance company on compensation proceeds.

• Operationally, Alam Flora’s FY22F net profit is envisaged to be supported by a higher volume of managed waste. However, on a reported basis, we think that Alam Flora’s net profit would fall by 34.6% to RM149mil in FY22F in the absence of writebacks of provisions. Alam Flora recorded a write-back of provision of RM80mil, which boosted its net profit to RM227.6mil in FY21 from RM95.3mil in FY20.

• Malakoff is anticipated to bid for more rooftop solar projects in FY22F. The group won about 25MW of rooftop solar projects in FY21. About 11MW are expected to be completed and commissioned this year.

• Malakoff’s aim is to achieve an RE (renewable energy) capacity of 1,000MW by FY25F vs. 40MW currently. The group also plans to expand its waste management business by setting up an integrated eco-recovery plant in Klang and a construction and demolition waste facility in Pahang. The integrated eco-recovery plant in Klang began construction in December 2021 and is expected to be completed in FY23F.

• We believe that Malakoff would also be bidding for a waste-to-energy plant in other states such as Pahang and Perak if the tender processes were launched. Malakoff submitted bids for waste-to-energy plants in Melaka and Johor in FY21. The results of the bidding process have not been announced yet.

Source: AmInvest Research - 25 Apr 2022