Investment Highlights

• We maintain BUY on Malakoff Corporation with an unchanged DCF-based fair value of RM0.79/share (WACC: 7.5%). Malakoff is currently trading at FY22F PE of 10.8x and FY23F PE of 9.7x.

• We forecast Malakoff’s dividend yields to be 8.1% in FY22F and 8.9% in FY23F. We ascribe a 3-star ESG rating to Malakoff.

• Malakoff’s annualised 1QFY22 core net profit (eximpairment on financial assets of RM6.1mil) was within our forecast but 8% below consensus estimates. We expect Malakoff’s net profit to improve in 2QFY22 due to the resumption of operations at the TBE power plant.

• Malakoff’s core net profit slid by 14.4% YoY to RM57mil in 1QFY22 as the TBE power plant experienced an unplanned outage. The unplanned outage lasted from early November 2021 to the middle of February 2022.

• Due to the forced outage, we estimate that TBE’s equivalent availability factor (EAF) dropped to 45%–50% in 1QFY22 from 60% in 1QFY21. TBE’s EAF was 37% in 4QFY21.

• On a positive note, Alam Flora’s earnings remained robust. Alam Flora’s net profit improved to RM34.3mil in 1QFY22 from RM25.5mil in 1QFY21 supported by a higher volume of waste handled and cost cutting measures.

• Alam Flora’s net profit margin rose to 15.9% in 1QFY22 from 12.4% in 1QFY21. On a quarterly basis, Alam Flora’s net profit fell by 73.2% to RM34.3mil in 1QFY22 from RM128.1mil in 4QFY21 in the absence of write-backs of provisions.

• Share of net profit in associates (mainly Shuaibah assets in Middle East) climbed to RM47.7mil in 1QFY22 from RM27.8mil in 1QFY21 in the absence of outages at the power plants.

• Comparing 1QFY22 against 4QFY21, Malakoff’s core net profit surged by 729.9%. Recall that Malakoff was affected by write-offs of assets and two months of unplanned outages at TBE in 4QFY21. The unplanned outage at TBE was mainly due to damages at the steam turbine blades.

Source: AmInvest Research - 25 May 2022