3Q18 headline net profit rose 14% qoq and fell 9% yoy mainly due to a one off gain worth RM55.3m from divestment of its 20% stake in Lekir Bulk Terminal to Tenaga in early Sept 2018. Adjusting for this and other one offs, core earnings fell 51% qoq following another round of outage at TB4 during the quarter from Sept 10 till the end of 3Q18.
Over the yoy period, 3Q18 core earnings surged but was due to a low base effect. To recap, 3Q17 headline earnings were inflated by a one off compensation received following a dispute settlement with IHI, the vendor that provided TBP’s boiler. Overall, 9M18 core earnings fell 20% to RM154m and trailed ours and consensus estimates at 63% and 65% respectively.
Based on the Daily Logsheet report released by the Energy Commission, unscheduled outage at Malakoff’s TBE/TB4 stretched from 10 Sep to 23 Oct before it resumed on 26 Oct. Management noted unscheduled outage rate (UOR) for TBE stood at 19% after moderating to 13.5% at end 30 Jun. We cut our 2018F estimates by 20% as we expect 4Q18 performance to remain weak. We pare down 2019/20F by 30%/14% on the back of higher effective tax rate assumed and lower contribution from the gas-fired power plants amidst lower dispatch rate.
This lowers our DCF-derived TP to RM0.82 (from: RM1) as we also roll our valuation forward; downgrade to HOLD. Malakoff’s share price has fallen by some 17% since announcing the Alam Flora (AF) purchase. While the acquisition would boost Malakoff’s cashflows, the earnings accretion is dependent on the funding structure and AF’s tariff hike. Still, we believe downside risk is limited at current level while dividend yields are fairly attractive at over 5%.
Source: BIMB Securities Research - 26 Nov 2018
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