Malakoff’s (MLK) 1HFY18 PATAMI of RM106m (-48% yoy) came in below expectations - delivering only 36% and 39% of both our and consensus forecasts respectively. Despite the increased contribution from Tanjung Bin Energy (TBE) due to the lower unplanned outages, the gains were diluted by the higher tax expenses incurred arising from the restructuring of its capital structure. MLK also announced the disposal of a non-core asset (LBT Sdn. Bhd.) for RM90m.

Improving Performance From TBE

The capacity payment for TBE has increased to RM140.8m (+13.3% qoq) from RM124.3m as the unplanned outage days have been reduced from 2 months in 1Q18 to 9 days in 2Q18. Assuming that there are no unplanned outages, TBE should receive around RM160m of capacity payments in the next quarter. Management believes that TBE is on the right track to achieve the full capacity payment, which is already in our forecast.

Higher Tax Rate Due to Restructuring

Although PBT has improved to RM140.3m (+44.5m qoq), PATAMI has remained flattish (-0.7% qoq), due to the higher effective tax rate during the quarter. The tax rate was due to the restructuring of its loan stocks to preferential shares of its subsidiary, where interest expenses were tax deductible previously. While management is looking at ways to reduce the tax bill, we believe it is fair to assume that it (quantum of it) will remain at these elevated levels for now.

Higher DPS Due to Disposal

MLK announced that it will be disposing its non-core asset (LBT Sdn. Bhd) to Integrax (a wholly-owned subsidiary of Tenaga) for a cash consideration of RM90m. MLK would be able to record a one-off gain of RM55.3m from the disposal. Assuming MLK maintains its current dividend policy, there is the possibility of the distribution of the gains as dividends of RM 0.8 - 1.0 sen/share to shareholders in 4Q18.

Source: Affin Hwang Research - 24 Aug 2018