• Malakoff’s 3Q17 net profit rose 25% yoy to RM64m boosted by an undisclosed one-off compensation from a settlement dispute between TBP and IHI albeit this was partially offset by high effective tax rate in the quarter.

• The 3Q17 EBITDA however fell 10% yoy on lower capacity payment for Segari with the revised PPA coming into effect on 1 Jul 2017. The 9M17 EBITDA was broadly in-line at 72% of our estimates.

• The 9M17 net earnings were flat and were ahead of ours and consensus estimates at 84% and 79% respectively, distorted by the one-off compensation. No changes to our estimates.

• Maintain BUY with an RM1.20 DCF-derived TP as we see value starting to emerge although we note Malakoff’s earnings outlook remain unattractive in the near to medium term.

Boosted by compensation

Malakoff’s 3Q17 net profit rose 25% yoy to RM64m boosted by an undisclosed one-off compensation from a settlement dispute between TBP and its contractor, IHI. The increase would have been higher (pretax jumped 49% yoy to RM213m) if not for effective tax rate surging to 66% due to under provision in prior years. The one-off compensation has distorted its operational performance which otherwise saw EBITDA declining 10% yoy.

Distorting performance, EBITDA a better reflection

Overall, the 9M17 pretax profit was already ahead of our full year estimates while net earnings accounted 84% of our FY17 forecasts. However, we note that 9M17 EBITDA was broadly in-line at 72% of our full year estimates.

Structural weakness prevails

The weak 3Q17 EBITDA was anticipated as one of its major IPPs, the Segari, saw lower capacity payment on revised PPA which was effective 1 Jul 2017. We make no changes to our estimates as we seek further clarity from management.

Emerging value but with heightened risks

Malakoff’s share price has remained flat since early Oct 2017, trading at RM1-1.05/share. We believe the depressed share price is due to the absence of a meaningful earnings catalyst. Also, the lack of management stability may pose an overhang over its earnings prospect which is in dire need of new concession assets. Nevertheless, we note that values have emerged with dividend yields looking attractive at 5% based on our 5sen DPS which implies an 80% payout. Even at its 70% dividend payout policy, the stock still offers decent yields of c.4.5% yield at current levels.

Source: BIMB Securities Research - 22 Nov 2017