Investment Highlights

• We affirm BUY on Malakoff with an unchanged DCF-based fair value of RM0.79/share (WACC: 7.5%). We ascribe a 3- star ESG rating to Malakoff.

• We consider Malakoff’s annualised 1HFY22 core net profit (ex-impairment of RM12.2mil on financial assets) to be within our forecast and consensus estimates. In spite of the strong earnings recovery in 2QFY22, we think that Malakoff’s net profit would soften in the coming quarters as the group’s maintenance expenses would increase due to planned outages in 2HFY22.

• Malakoff has declared a smaller gross DPS of 2.8 sen in 1HFY22 vs. 3.1 sen in 1HFY21. We forecast a gross DPS of 5 sen for FY22E compared with 5.1 sen in FY21.

• Malakoff’s 1HFY22 core net profit declined by 4.3% YoY to RM182.3mil, dragged by 1Q forced outages at the TBE power plant. As a result, 1QFY22 capacity payments from TBE dropped by 60.3% YoY. Recall that the forced outage at TBE took place from November 2021 until the middle of February 2022.

• We estimate that TBE’s equivalent availability factor (EAF) was a low 60% in 1HFY22 vs. 85% in 1HFY21 due to the forced outage.

• Comparing 2QFY22 against 1QFY22 however, Malakoff’s core net profit improved by 2.2x to RM125.3mil as TBE resumed operations in mid-February 2022.

• Meanwhile, Alam Flora’s 1HFY22 net profit was flat at RM62.5mil despite its net profit margin shrinking to 14.6% in 1HFY22 from 15.4% in 1HFY21.

• On a quarterly basis, Alam Flora’s 2QFY22 net profit declined by 17.9% to RM28.2mil as its net profit margin eased to 13.3% in 2QFY22 from 15.9% in 1QFY22.

• Share of net profit in associates (mainly Shuaibah assets in the Middle East) climbed to RM103.6mil in 1HFY22 from RM89.3mil in 1HFY21 in the absence of outages. Comparing 2QFY22 against 1QFY22, share of net profit in the associates improved to RM55.9mil from RM47.7mil.

Source: AmInvest Research - 24 Aug 2022