Investment Highlights

• We maintain BUY on Malakoff with an unchanged DCFbased fair value of RM0.75/share (WACC: 7.5%) on expectations that the group’s net profit would normalise in FY24F on the back of a recovery in fuel margin. We ascribe a neutral 3-star ESG rating to Malakoff.

• For FY23E, however, we now forecast a larger net loss of RM474.2mil vs. RM367.7mil previously. Although Malakoff will perform better in 4QFY23 compared to 3QFY23, we were too aggressive in our expectations on the group’s fuel margin recovery.

• Here are the key takeaways from Malakoff’s analyst briefing yesterday: -
  ➢ Malakoff recorded a fuel margin loss of RM972mil YoY in 9MFY23. Comparing 3QFY23 against 2QFY23, however, fuel margin loss declined by RM263mil, which contributed to a smaller net loss of RM85.6mil for the group (2QFY23 net loss: RM318.7mil). Fuel margin is expected to recover further in 4QFY23 as Malakoff draws down its high-cost coal inventory.
  ➢ Alam Flora’s net profit margin has been falling due to high repair and maintenance expenses. This arose as most of Alam Flora’s trucks and vehicles are more than 7 years old. Going forward, Alam Flora will be buying a new fleet of vehicles to replace the old fleet. To recap, Alam Flora’s net profit margin declined to 12.3% in 9MFY23 from 14.7% in 9MFY22.
  ➢ Tanjung Bin Energy (TBE) has stabilised after being affected by forced outages early last year. The unplanned outage rate (UOR) at TBE is 8% currently compared to more than 20% at the peak of the outage. TBE’s UOR is expected to fall below 6% by the end of FY23E.
  ➢ Malakoff’s RM133.2mil acquisition of a 49% stake in eIdaman, is positive. Alam Flora and e-Idaman will be in a stronger position to negotiate with contractors and reduce costs via sharing of resources. The proposed acquisition is expected to be completed in 2QFY24.

• Malakoff is currently trading at a compelling FY24F PE of 12x, which is below its 2-year average of 14x. FY24F dividend yield is also attractive at 8.1%.

Source: AmInvest Research - 28 Nov 2023