Malakoff reported higher 3QFY17 net profit of RM64.2m (+24.6% YoY) mainly due to compensation received from settlement of dispute between Tanjung Bin Power (TBP) and IHI Corporation Japan (IHI), the manufacturer and supplier of equipment and parts for boilers at TBP. However, this was partially offset by higher tax expenses due to under-provision of prior years’ tax. Excluding the compensation from IHI (estimated at about RM100m), under-provision of prior years’ taxation, net foreign exchange loss and one off insurance claim received by Kapar Energy Ventures (KEV) amounting to RM20m in 2QFY17, 9MFY17 core net earnings of RM218.5m was within ours but below consensus expectations at 74% and 66% respectively. Our earnings forecasts remain unchanged. There was no dividend declared for the period under review. Malakoff is currently trading at FY18F EV/EBITDA of 7x, compared to its peers at 10x. We maintain our Trading Buy call on Malakoff at target price of RM1.29 based on DCF-valuation.

• 3QFY17 revenue (+20.3% YoY). Despite receiving lower capacity payment for Segari Energy Ventures (SEV) from July 2017, following the revision of its extended Power Purchase Agreement (PPA), Malakoff reported higher revenue of RM1.8bn during the quarter (vs RM1.5bn in 3QFY16). This was mainly due to higher applicable coal price which improved the revenue contribution by its coal-fired power plant of TBP and Tanjung Bin Energy (TBE). YTD 9MFY17 revenue increased 21.7% YoY to RM5.3bn mainly due to 9-months contribution by TBE, compared to 6-months in 9MFY16.

• 3QFY17 net profit (+24.6% YoY). Its net profit for the quarter increased to RM64.2m from RM51.5m in 3QFY16 mainly due to one-off settlement received by TBP relating to previous operational issues, but partially offset by higher income tax expenses (+48.3% YoY) due to a one-time tax charge pursuant to the under-provision of prior years’ tax. Excluding the estimated IHI compensation and under-provision of prior years’ tax, net forex loss, insurance claim received by KEV in 2QFY17 and insurance claim on rotor replacement in 2QFY16, its core net profit for 9MFY17 declined by 3% YoY to RM218.5m, compared to RM225.4m for 9MFY16.

Source: PublicInvest Research - 22 Nov 2017