We maintain HOLD on Malakoff Corporation with a DCFbased fair value of RM0.70/share (WACC: 7.5%). We ascribe a 3-star ESG rating to Malakoff.
Here are the key takeaways from Malakoff’s briefing yesterday: -
Negative fuel margin affected Malakoff’s net profit by RM109mil in 1QFY23. Apart from the negative fuel margin, Malakoff was also hit by outages at the TBP power plant in 1QFY23. Additionally, a change in the accounting standard in the Middle East resulted in lower recognition of revenue in associates in 1QFY23.
TBP’s EAF (equivalent availability factor) was 72% in 1QFY23 vs. 78% in 1QFY22 and 82% in 4QFY22. However, TBE’s EAF improved to 92% in 1QFY23 from 50% in 1QFY22.
We believe that the fuel margin could remain negative in 2QFY23 as coal prices are still falling. According to Bloomberg, coal prices have plunged by 61% to US$141/tonne currently since the start of the year.
Malakoff is expected to carry out a scheduled outage at TBP in June 2023, which would last for 45 days. There would also be a planned outage at TBE in October 2023, which would last for 55 days. The outages are anticipated to result in higher repair and maintenance expenses during the period.
On a positive note, turbine issues at TBE have been resolved. TBE’s UOR (unplanned outage rate) is anticipated to fall below 6% by year-end, which is the threshold level stipulated in the PPA (power purchase agreement).
Malakoff is currently trading at a FY24F PE of 11x, lower than its 2-year average of 14x. We believe that the discount is justified due to risks of earnings and dividend downgrades.
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