Investment Highlights

• We maintain HOLD on Malakoff with an unchanged DCF- based fair value of RM0.75/share (WACC: 7.5%), which implies a FY25F PE of 13.6x, in line with its 2-year average. We attach a neutral 3-star ESG rating to Malakoff.
   
• Here the key takeaways from Alam Flora’s analyst briefing last Friday:
   
  • There are opportunities in the waste management industry as Malaysia’s waste is forecast to increase to 19mil tonnes by 2050F from 14mil tonnes in 2021. 44.5% of the waste in Malaysia comprise food while 13.2% plastics and 8.5% paper products.
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  • Hence, the government is planning to build another 22 waste-to-energy (WTE) plants in the country. Currently, the plants which are under construction are in Melaka, Selangor, KL and Johor. The WTE plants, which will be up for bidding, are in Kuantan, Kedah and Johor.
     
  • Alam Flora is focusing on 4 areas. These are waste recycling from the renewable energy industry, processing of medical waste, recycling of electric and electronic equipment and managing integrated facilities.
     
  • The global medical waste management market is forecast at US$17bil in 2029F based on a CAGR of 6.3% from 2022 to 2029F. In Malaysia, waste in government hospitals is managed by 3 companies i.e. Radicare Group of Companies, Medivest and Edgenta Healthcare Solutions.
     
  • Alam Flora also plans to manage waste from shipping vessels in ports by setting up Port Reception Facilities (PRF). Potential customers include sister companies such as Johor Port. Capex to set up a PRF is estimated at RM127mil.
     
  • Overall, we view Alam Flora’s outlook positively. Alam Flora is expected to record a net profit of RM120mil in FY24E vs. RM113mil in FY23, underpinned by a higher volume of waste handled and improved margins resulting from lower fleet costs.
     
• Malakoff is currently trading at FY25F PE of 14.1x and in line with its 2-year average.

Source: AmInvest Research - 24 Jun 2024