Investment Highlights

• We maintain BUY on Malakoff with an unchanged DCF- based fair value of RM0.75/share (WACC: 7.5%). We ascribe a neutral 3-star ESG rating to Malakoff. Our fair value implies a FY24F PE of 14x, at parity to its 2-year average.

• Here are the key takeaways from Malakoff’s virtual briefing yesterday:
  • Malakoff is not expected to record any more impairment for its 40%-owned Al-Hidd in FY24F. The net book value of Al-Hidd in Malakoff’s balance sheet stands at RM320mil currently.
     
  • The impairment of RM96mil on Al-Hidd in FY23 came about after the assessment on the group’s outlook in Bahrain. The chances are poor for Al-Hidd’s PPA to be extended after its expiry in FY27F. This is because the Bahrain government is moving towards a reverse osmosis water desalination process whereas Al-Hidd uses the thermal water desalination process.
     
  •  In Malaysia, Tajung Bin Power (TBP) plant’s EAF (equivalent availability factor) was 96% in 4QFY23 vs. 87% in 3QFY23. However, Tanjung Bin Energy’s (TBE) EAF plunged to 32% in 4QFY23 from 96% in 3QFY23. In spite of this, TBE’s capacity payments were intact in 4QFY23 as the outage was a scheduled one.
     
  • In FY23, TBP accounted for 51% of Malakoff’s capacity payments while TBE accounted for an additional 32%. The balance 17% of capacity payments came from the Prai and Segari power plants.
     
  • Malakoff recorded a positive fuel margin of RM30mil in 4QFY23 as coal prices stabilised. We do not expect fuel margin to be negative in FY24F unless coal prices fall. Recall that Malakoff’s fuel margin losses amounted to RM1.1bil in FY23 vs. FY22.

• Malakoff is currently trading at an attractive FY24F PE of 11x, which is below its 2-year average of 14x.

Source: AmInvest Research - 27 Feb 2024