• Malakoff Corporation has entered into a Heads of Agreement (HOA) with Rising Promenade, RP Hydro (RPHK) and Rising O&M Engineering Services (ROMES). The HOA will lay out the parameters for the parties’ participation in 3 hydroelectric power projects with a total installed capacity of 84MW in Kuala Krai, Kelantan.

• Malakoff will participate in the project via the purchase of 70% ordinary shares in RPHK, subscription of 250mil preference shares in RPHK, which will cost RM250mil and purchase of 70% ordinary shares in ROMES.

• Essentially, Malakoff will own a 70% stake in the hydro power plants.

• In June 2021, RPHK entered into 3 Renewable Energy (RE) Power Purchase Agreements with Tenaga Nasional for the sale and purchase of RE from the hydro power plants for a period of 21 years commencing from the Feed-In-Tariff Commencement Date.

• We positively view this development which would increase Malakoff’s exposure to RE and build up its expertise in the hydroelectric sector. Currently, Malakoff’s exposure in RE is via the commissioning of 23MW solar rooftop projects.

• We estimate the cost of the hydro projects to be RM1.2bil in total based on a replacement cost of RM15mil per MW. Malakoff would be issuing ASEAN Green SRI Sukuk Wakalah to finance the cost of the hydro power projects. We think that it would take 3 years for the hydro power plants to be completed.

• Based on a project IRR of 8%, we believe that the hydro dams would contribute 10% to 15% to Malakoff’s EBIT. We are not revising Malakoff’s earnings forecast as the hydro power plants would only be completed in 3 years’ time.

• We maintain BUY on Malakoff with a DCF-based fair value of RM0.87/share. Malakoff is currently trading at a FY23F PE of 8x, which is substantively lower than its 2-year average of 14x.

Source: AmInvest Research - 22 Mar 2023