Investment Highlights

• We maintain BUY on Malakoff with an unchanged DCFbased fair value of RM0.75/share (WACC: 7.5%). We ascribe a neutral 3-star ESG rating to Malakoff.

• In spite of Malakoff’s poor results, we are keeping our recommendation on expectation that Malakoff’s net profit will normalise to the RM200mil to RM300mil range in FY24F as fuel margin recovers on the back of lower coal costs. Malakoff’s fuel margin loss was RM858.4mil in 9MFY23.

• Malakoff’s 9MFY23 results were below our expectations and consensus due to a larger-than-estimated fuel margin loss in 3QFY23. Malakoff’s net loss of RM480mil in 9MFY23 was bigger than our earlier full-year forecast of RM48mil and consensus estimates of RM123.6mil. We are now forecasting a net loss of RM367.7mil for Malakoff in FY23E.

• On a positive note, Malakoff’s net losses declined to RM85.6mil in 3QFY23 from RM318.7mil in 2QFY23. We believe that Malakoff drew down most of its high-cost coal inventory in 2QFY23. Fuel margin loss was RM182.4mil in 3QFY23.

• Malakoff’s revenue slid by 7.8% YoY to RM6.8bil in 9MFY23 due to lower energy payments and expiry of the GB3 power purchase agreement. Alam Flora’s net profit slid by 14.5% to RM81.4mil in 9MFY23 from RM95.3mil in 9MFY22. Net profit margin eased to 12.3% in 9MFY23 from 14.7% in 9MFY22. Alam Flora was affected by the non-renewal of a government contract in 9MFY23.

• Comparing 3QFY23 against 2QFY23, Alam Flora’s net profit fell by 22.5% to RM23mil. Net profit margin declined to 10.5% in 3QFY23 from 13.5% in 2QFY23. We attribute the erosion in net profit margin in 3QFY23 to higher fleet costs.

• Malakoff is currently trading at a FY24F PE of 12x, which is below its 2-year average of 14x.

Source: AmInvest Research - 27 Nov 2023