Investment Highlights

• We affirm BUY on Malakoff with an unchanged DCF-based fair value of RM0.87/share (WACC: 7.5%). We attach a 3- star ESG rating to Malakoff.

• In spite of Malakoff’s decent FY22 performance, we are keeping our FY23F net profit of RM413.3mil for now. As coal and gas costs have declined, we believe that Malakoff would not be able to repeat the FY22 surge in fuel margins in FY23F.

• Malakoff’s FY22 core net profit (ex-impairment on associate and financial assets of RM410.5mil) was 36% above our forecast and 50% above consensus estimates. The group’s core results exceeded expectations as associate earnings almost doubled in 4QFY22 and there were insurance claims of RM78mil. The surge in associate earnings came from 40%-owned Kapar Energy Ventures, which benefited from stronger fuel margin.

• Malakoff will only declare its final gross DPS at a later date. We forecast an FY23F gross DPS of 5 sen, which translates into a yield of 7.2%.

• Malakoff’s FY22 core net profit surged by more than 2-fold to RM712.7mil, underpinned by an increase in fuel margin. The group recorded additional earnings of RM314mil from the enhancement in fuel margin in FY22.

• Operationally, Malakoff’s energy payments more than doubled in FY22 while capacity payments slid by 3.1%. TBP’s (Tanjung Bin power plant) energy payments climbed to RM5.8bil in FY22 from RM2.4bil in FY21. TBE’s (Tanjung Bin Energy) energy payments went up to RM1.3bil in FY22 from RM795mil in FY21.

• A dampener were TBE’s capacity payments. Due to a forced outage in 1QFY22 and a planned outage in 4QFY22, TBE’s EAF fell to 65.3% in FY22 from 72.8% in FY21. As a result, TBE’s capacity payments dropped to RM453mil in FY22 from RM557mil in FY21.

• Alam Flora’s net profit slid by 54.6% to RM103.3mil in FY22 from RM228mil in FY21 due to higher fleet maintenance costs. Net profit margin slipped to 11.8% in FY22 from 27.5% in FY21.

• Malakoff is currently trading at a compelling FY23F PE of 8x, which is lower than its 2-year average of 14x.

Source: AmInvest Research - 24 Feb 2023