• Malakoff announced a proposed disposal of its entire 50% stake in the Macarthur Wind Farm for A$356.9m to AMP Capital. This implies a gain of RM546m or c.A$191m (@ RM2.8597/A$1.00). Management expects the disposal to complete in 1Q20.

• We view the transaction positively as it implies a decent 15.7x PE / 13.6x PB based on 2018 audited figures. Proceeds from the sale are mostly used to pare down debts, relieving cashflows for new asset purchase (ie. Alam Flora) and new asset investments.

• Reflecting the disposal and housekeeping (mainly on the effective tax rate), we revised 2019-2021F earnings by -15-20%. The growth in 2021F earnings is driven partly by interest cost savings.

• Upgrade Malakoff to TRADING BUY with higher SOP-derived RM0.97 TP (from: RM0.82) from disposal gains and lower debt. Our forecast has yet to reflect earnings from future investments.

Crystallising for the future

Malakoff announced plans to dispose its entire 50% stake in its sole renewable energy (RE) asset, the Macarthur Wind Farm in Australia for A$356.9m to AMP Capital Funds Management. The proceeds would be mostly used to pare down its debt (Table 1). Savings from the interest costs should boost Malakoff’s free cashflow generation and provide room to finance future investments (ie. acquisition of Alam Flora and potential investments with Touch Meccanica in RE).

Our thoughts: positive

Malakoff acquired the 50% stake in the Macarthur Wind Farm (MWF) project back in 2013 from New Zealand’s Meridian, joint developer of the 140x3MW-turbine project, for A$130m. The A$356.9m price tag implies a 6-year CAGR of 8.4% and values the asset at 15.7x PE or 13.6x PB based on 2018 audited figures – a premium to the value ascribed in our valuation.

Revisit forecasts; gains from interest savings

We revisited our estimates and revised 2019-2021F forecasts by -15- 20% (Table 2). Our core profit forecasts for 2020F implies an earnings decline which largely reflects additional costs incurred from hedging and translation reserves as guided by management. The RM546m gain is c.A$19.6m lower than the A$210.5m which would be deposited into a Trust Deed account for the Sukuk Murabahah issued by Malakoff Power Bhd (Table 1).

Upgrade to TRADING BUY with higher RM0.97 TP

We turn positive on Malakoff and upgrade our call to TRADING BUY with a higher SOP-derived TP of RM0.97 (from: HOLD, RM0.82). This largely reflect the lower net debt value expected. We have yet to reflect any earnings contribution from future investments in our forecasts.

Source: BIMB Securities Research - 30 Oct 2019