Malakoff’s (MLK) 9M18 core PATAMI of RM136m (-40% yoy) came in below consensus expectations – delivering 58% of consensus expectations. The disappointing results is due to lower contribution from Tanjung Bin Energy (TBE) which faced unplanned outages for most of September. However, the recognition of a RM55m disposal gain of its associate helped cushion the impact.

Problems With TBE Again

Although management had previously guided that TBE is on the right track to achieve full capacity payment during the 2Q, TBE once again reported unplanned outages for the most of September continuing into late October. The full capacity payment for TBE is around RM160m, but due to the outages they only receive around RM147m during the quarter. However, the impact to the bottom line from the current outage is around RM55m. The rectification work has completed and resumed operations on 24 October 2018.

Still Working on Reducing the Effective Tax Rate

The effective tax rate remains at an elevated level at 40.5% in 3Q, significantly above the statutory rate of 24%. Management has indicated that they are still working towards lowering the tax rate and will likely take some time before its addressed. Nevertheless, management’s focus remains on identifying new projects to generate earning growth but also reckons that the benefits of these new projects will need time to materialise as these are greenfield projects.

No Change in Dividend Policy

Despite the weaker yoy performance, management has indicated that they will maintain its dividend policy with a payout of no less than 75% of its net profit. Management believes that they can remain competitive in the upcoming bids for new power plant project or renewable energy project in Malaysia, as they have a cash pile of around RM5bn, with a net gearing ratio of 1.5x. As Malakoff’s power plants PPA are expiring, its important for them to bid for new projects to help grow its bottom line.

Source: Affin Hwang Research - 26 Nov 2018