• Maintain HOLD (TP: RM0.62). Malakoff 9MFY23 core LATAMI of RM475mn was below our estimate, but above consensus. 3QFY23 earnings losses narrowed to RM85mn (2QFY23 LATAMI: RM319mn) attributed to the shrunk of negative fuel margin from TBP and TBE coal plants. No dividend declared. We expect earnings to return to black in FY2024, driven by the normalisation of coal prices and the gradual dispatch of higher-priced coal inventory, resulting in reduced costs. We revised our forecasts, lowering our FY23F LATAMI estimate to RM516mn, and reducing our earnings estimates for FY24F and FY25F to RM184mn and RM209mn, respectively, reflecting our adjustment for coal prices. Nonetheless, we commend Malakoff's recent expansion of its Environmental Segment, marked by the 49% acquisition of E-Idaman, and its commitment to decarbonisation. Maintain HOLD call on Malakoff with a DCF-derived TP of RM0.62.

• Key highlights. In 3Q23, Malakoff experienced an 8.9% QoQ decline in revenue to RM2.2bn, primarily attributed to reduced energy payments from Tg Bin Power (TBP) and Tg Bin Energy (TBE). This reduction aligned with the decrease in the Applicable Coal Price (ACP) and was exacerbated by the absence of revenue contribution from GB3, as its PPA expired in Dec 2022. Notably, the ACP in 3Q23 plummeted by 15.3% QoQ to RM23.32/mmbtu. Despite the decline in revenue, the LATAMI narrowed to RM85.5mn, driven by a lower negative fuel margin recorded from TBP and TBE coal plants. This reduction was attributed to the declining global coal prices in the latter half of 2023. In 3Q23, TBP and TBE reported a negative fuel margin of RM149mn and RM33mn, respectively, compared to 2Q23 figures of TBP: RM556.2mn and TBE: RM14.9mn.

• Earnings Revision. We re-evaluated our FY23F LATAMI estimate, revising it to RM516mn, and adjusted our earnings forecasts for FY24F and FY25F to RM184mn and RM209mn, respectively, in response to changes in our forecasted coal price.

• Outlook. We anticipate a positive turnaround in FY2024, driven by declining coal prices resulting from reduced demand amid global energy transition and decreased costs associated with higher coal inventory. The persistence of higher stock coal is caused by coal procured at a higher price in 2022, dragged by a slower despatch rate in 1HFY23.

Source: BIMB Securities Research - 27 Nov 2023