• Malakoff’s 2Q17 core profit rose 14% yoy on higher electricity sales by TBP, aiding fuel margin, while associates also turned a profit. Our 2Q16 core profit has been adjusted for a one-off insurance claim worth RM54m (net).

• Meanwhile, 1H17 core profit rose 15% and was broadly in line with our FY17E estimates at 59% and consensus at 55%.

• An interim DPS of 2.5 sen was declared which is lower than the 3.5 sen DPS declared in 2Q16. We have assumed full year payout of 80% which implies a 5 sen DPS.

• Upgrade to BUY following recent share price correction with an unchanged TP of RM1.20. While it lacks earnings catalyst, current price levels ignores TBE’s contribution in FY17, based on our estimates. Dividend yields appear attractive at 4.9%.

Decent outcome amidst uncertainties

Malakoff’s 2Q17 core profit grew 14% yoy due to higher energy payment from TBP reflecting the 20% yoy increase in electricity sales. Associate also turned profitable. Our 2Q17 core profit adjusts for a one-off insurance claim worth RM15m (net) at KEV. Our 2Q16 core profit also adjusts for a one-off insurance claim of RM54m (net). If not for this, core profit would ease 21% yoy to RM104m (from RM132m). The decline is due to the unscheduled outage at TBE in May which also explains the qoq earnings decline.

1H17 boosted by full TBE contribution in 1Q17 and associates

Malakoff’s 1H17 revenue fared better mainly due to full quarter capacity payment contribution from TBE in 1Q17 (TBE came online in late 1Q16). Nevertheless, EBITDA margin shrank to 39.6% (from 43.6% in 1H16) on higher O&M expense in 1Q17 and lower TBE contribution in 2Q17. Overall, 1H17 core earnings grew 15% driven by sustained turnaround at associate.

Weaker quarters ahead

While Malakoff’s 1H17 core earnings made up 59% of our FY17E estimates, our forecasts are maintained and we deem the results to be inline. We expect a weaker 2H17 following tariff step-down for Segari Energy Ventures (SEV) as per the renegotiated PPA.

Value emerging: upgrade to BUY with unchanged TP of RM1.20

Malakoff’s share price has retraced by some 16% since its 1Q17 results (ie. from RM1.20). We estimate that current price level seem to ignore capacity payments for TBE in FY17. While the stock lacks meaningful catalyst, we note dividend yields look attractive at 4.9% based on our 5sen DPS which implies an 80% payout. Even at its dividend policy of a minimum 70% payout, it still implies a healthy 4.4sen DPS or 4.4% y

Source: BIMB Securities Research - 22 Aug 2017