- In a filing to Bursa Malaysia yesterday, Malakoff Corporation announced the award of the arbitration proceedings between its wholly-owned subsidiary Port Dickson Power (PDP) and Sime Darby Bhd against Tenaga Nasional Bhd.

- Note that Malakoff only had a 25% equity stake in PDP at the commencement of the arbitration on 26 March 2013. The group had subsequently – in April 2014 – acquired the remaining 75% which it did not own from Sime Darby Energy for RM289mil. The 436.4MW gas-fired power plant is Malakoff’s only plant operating in open cycle gas turbine mode (OCGT).

- We understand that PDP had been seeking a recovery of outstanding capacity and energy payments from Tenaga following the adjustment of the Fixed Operating Rate and Variable Operating Rate for the period from February 1999 (including interest).

- Based on the 10 December 1993 PPA signed between Tenaga and PDP, the former had agreed to purchase the generating capacity and electric energy generated by the latter. The PPA is set to expire in January 2016.

- Salient details of the award include: i. PDP to pay 50% of the respondent costs amounting to RM1.4mil; ii. PDP and Tenaga to respectively pay 75% and 25% of the Tribunal’s costs and expenses in the sum of approximately RM1.0mil; and iii. PDP and Tenaga to respectively pay 75% and 25% of the KLRCA costs and expenses for the sum of approximately RM126,873.

- The impact on Malakoff’s earnings is insignificant as the total amount payable is RM2.3mil. Hence, we maintain our FY15F-FY17F earnings estimates. Maintain BUY on Malakoff with an unchanged DCF-derived fair value of RM2.10/share.

Source: AmeSecurities Research - 4 Sep 2015