Investment Highlights

• We downgrade Malakoff Corporation to HOLD from BUY with a lower DCF-based fair value of RM0.70/share (vs. RM0.81/share previously) (WACC: 7.5%). We reduce Malakoff’s FY23E net profit by 75.2% to account for a weaker fuel margin. We attach a 3-star ESG rating to Malakoff.

• Malakoff’s 1QFY23 results were below our forecast and consensus estimates. The group recorded a net loss of RM75.7mil in 1QFY23 in contrast to our earlier expectations of a net profit of RM378mil for the full year. Consensus had forecast net earnings of RM355.4mil for FY23E.

• Malakoff swung into the red in 1QFY23 from a net profit of RM57mil in 1QFY22 due to a negative fuel margin. The negative fuel margin affected Malakoff’s 1QFY23 net profit by RM109mil in 1QFY23.

• Recall that Malakoff’s FY22 net profit was boosted by a fuel margin of RM314mil. Fuel margin turned negative as coal and gas prices have been declining since 4QFY22.

• Malakoff’s revenue climbed by 21.3% YoY to RM2.3bil in 1QFY23 driven by higher capacity payments. Recall that the TBE power plant experienced a forced outage from November 2021 to February 2022 due to issues with its turbine blades.

• TBP accounted for 52.8% of Malakoff’s capacity payments in 1QFY23 while TBE accounted for an additional 29.6%. The balance 17.5% of capacity payments came from the Prai and Segari power plants.

• Alam Flora’s net profit slid to RM28.8mil in 1QFY23 from RM34.3mil in 1QFY22 due to higher fleet costs. Net profit margin eased to 13% in 1QFY23 from 15.9% in 1QFY22.

• Malakoff is currently trading at a FY24F PE of 13x, which is close to its 2-year average of 14x.

Source: AmInvest Research - 29 May 2023