Malakoff recorded a core net loss of RM85.6m in 3QFY23, narrowing from RM318.7m core net loss in 2QFY23. The losses are mainly due to the Group still incurring negative fuel margins in 3QFY23 for both Tanjung Bin Power (TBP) and Tanjung Bin Energy (TBE), though lower compared to 2QFY23. Cumulatively, the Group reported core net loss of RM480m for 9MFY23, larger than full year consensus’ net loss estimates of RM225.8m but in line with our full year net loss estimates of RM612.5m at 78%. We reduce our net loss estimates by 22% for FY23 however, as we estimate the Group could achieve breakeven in 4QFY23 amid stable coal prices, which would close the gap between actual Weighted Average Coal Price (WACP) against Applicable Coal Price (ACP). We downgrade our call to Trading Buy (from Outperform) on expectations of the improvements ahead, though keep the TP unchanged at RM0.70.

• Narrowing negative fuel margin. Among the two power plants in Tanjung Bin, TBP has been the worse hit given it uses 70% of bituminous coal (mirroring Newcastle Coal Futures benchmark), which suffered sharp drops of 67% in 1HFY23. However, the coal price has now stabilised om the range of USD120-160/MT since 2HFY23. Thus, the negative fuel margin incurred by the Group has narrowed to RM182.4m in 3QFY23 from RM571.0m in 2QFY23. On this basis, we believe the Group could achieve breakeven in 4QFY23 if the coal price remains stable at current range, closing the gap between WACP and ACP (Figure 1 and 2).

• Growing cash reserve. Malakoff recorded a positive EBITDA of RM468.5m in 9MFY23 and generated RM1bn cash flow from operations, largely attributed to the reduction of its inventory amid cheaper coal price and expedited receivables. As a result, the Group’s cash balance improved to RM2.3bn from RM1.5bn as at the end of FY22.

• Diverse RE portfolio to achieve 1,400MW. The Group recently entered into Solar Power Purchase agreement with DRB Hicom for development, operation and maintenance of solar photovoltaic systems totalling 20.78MWp in November 2023 as part of its commitment to achieve 500MW target within the Albukhary Group. This will increase the Group’s solar portfolio to 87MW. In addition, the Group just completed the acquisition of Rising Promenades SB, concession holder of 84MW hydro power plant. On the 2,100MW TBP biomass co-firing project, the Group is looking forward to commencing pilot phase at 5% mix (105MW) of biomass in 2024. All in, we estimate the Group’s total RE portfolio is about 276MW. Nevertheless, the numbers could increase further with a potential waste-to-energy (WTE) plant in its portfolio, which complements its waste management solution, Alam Flora and the recently acquired associate EIdaman.

Source: PublicInvest Research - 27 Nov 2023