• We recently visited the 2,100MW Tanjung Bin Power Plant (TBPP) in Johor to gain a valuable insight on its operational activities and its future plan in energy transition to cleaner energy sources.

• The company is actively exploring opportunities in three key areas: 1) incorporating biomass co-firing at its Tanjung Bin Power Plant, 2) exploring the potential for a new combined cycle gas turbine (CCGT) plant, and 3) evaluating the possibility of exporting electricity to Singapore.

• We maintain our forecast at this juncture. We anticipate a reduction in negative fuel margins in coming quarters, thanks to the stabilizing of coal prices which led to convergence in ACP and WACP coal price.

• Maintain HOLD recommendation for Malakoff, with an unchanged DCF-derived TP of RM0.62. Our TP implies 15.8x FY24F P/E. We think this is fair amidst weakness in earnings whilst company's expansion efforts in green energy are still in the nascent stages of development.

Energy Transition Journey

We like Malakoff for its commitment towards energy transition. As a coal-based independent power producer (IPP), we believe this transition will reduce negative sentiment towards the stock. To recap, Malakoff recently announced the construction of small hydropower generation in Kelantan totalling 84MW that is worth RM1.2bn. Besides that, it will continue to expand its solar portfolio further as Malakoff already possessed one Large Scale Solar (29MW) and rooftop solar projects (38.6MW) domestically. In future, the company plans to embark on 1) biomass co-firing at its Tanjung Bin Power Plant (TBPP), 2) new combined cycle gas turbine (CCGT) plant, and 3) electricity export to Singapore.

Biomass Co-Firing at TBPP

Malakoff also plans to introduce biomass co-firing at TBPP as part of its ESG journey. By doing this, the company will reduce its carbon footprint by burning less coal as well as avoiding methane emission from Empty Fruit Bunch (EFB) decay. It has conducted a trial co-firing initiative for 12 days at its TBPP by burning 0.5% biomass per generating unit along with the 99.5% coal during December 2022. The biomass fuel source was comprised of EFB, rice husks pellet and wood chips. The trial was a success given no plant abnormalities observed. Subsequently, it plans to gradually increase the biomass capacity to a minimum 15% by 2027. Management foresees that there is a limited operational risk to achieve that. However, it cautioned that to secure sufficient supplies could be a challenge. To add, the biomass co-firing project has been identified as one of the flagship catalyst projects under the National Energy Transition Roadmap phase 1 (levers: Bioenergy).

Preparing for New CCGT Plant

The group also plans to replace TBPP 2,100MW with a CCGT plant with net capacity of 2,250MW after its decommissioning by 2031. The plan is to acquire additional 61 acres land area beside the TBPP. Other from that, the Group also foresee a future potential of readily available landbank such as Windsor Estate, Gadek Estate and brownfield sites of expiring plants. We are positive with this plan as we believe it will enhance its long term earnings visibility particularly after expiry of existing power purchase agreement (PPA) expiry in 2031. Additionally, this could also provide the upside to our TP.

Source: BIMB Securities Research - 27 Sept 2023