Its 2QFY21 net profit almost doubled, sequentially, to RM117.7m, which beat expectations, owing to better-than- expected earnings from Alam Flora and associates, while local power earnings have normalised from planned outages in the preceding quarter. Going forth, with the completion of the forced outage work in 2HFY20, earnings volatility is fairly low henceforth. We continue to rate the stock an OP for its attractive >6% yield with slightly higher TP of RM1.06.

1HFY21 above forecasts. At 60%/59% of house/street’s FY21 estimates, 1HFY21 core profit of RM178.2m came above expectations owing to better-than-expected earnings from Alam Flora and associate income in 2QFY21. Meanwhile, it declared an interim NDPS of 3.1 sen (ex-date: 17 Sep; payment date: 20 Oct) in 2QFY21 which was higher than the 2.8 sen paid in 2QFY20.

A better overall results sequentially. 2QFY21 core profit almost doubled QoQ to RM117.7m from RM60.4m on the back of 17% hike in revenue to RM1.58b from RM1.35b. The improvement in earnings was largely due to: (i) the normalisation of local power earnings after a higher O&M costs for planned outages and lower fuel margin at TBE and TBP in 1QFY21, (ii) Alam Flora’s PAT jumping 45% to RM37.0m from RM25.5m, and (iii) 121% surge in associate income to RM61.5m from RM27.8m on higher earnings from Al-Hidd IWPP on lower plant outages.

… Alam Flora showed improving earnings. YoY, 2QFY21 core profit leapt 64% from RM71.9m in 2QFY20 while revenue rose 5% from RM1.51b. This was attributable to higher contribution from TBP arising from higher fuel margin, 75% hike in Alam Flora earnings and 22% improvement in associate incomes as mentioned above. To recap, 2QFY20 core profit was adjusted for c.RM33.1m GE claim settlement. YTD, despite revenue falling 11% due to lower energy payments from TBE, TBP and SEV, 1HFY21 core profit rose 11% to RM178.2m from RM161.1m, mainly led by higher earnings from Alam Flora by 41% or RM18.2m. Meanwhile, associate incomes slid slightly by 2% to RM89.3m from RM91.4m in 1HFY20.

Stable earnings from FY21 onward. With unplanned outages at TBE in 2HFY20 resolved, MALAKOF’s earnings should be more stable. On the other hand, Alam Flora has also reported better earnings over the quarters since the earnings inclusion in early 2020. All these make its dividends payout more sustainable. Post 2QFY21 results, we upgrade FY21E earnings by 7% to reflect strong earnings from Alam Flora and associate incomes. This also leads to a 1% upward adjustment for FY22 forecasts on fine-tuning. Accordingly, FY21-FY22 NDPS are adjusted correspondingly based on unchanged 80% payout assumptions.

OUTPERFORM maintained with a slightly higher target price of RM1.06 from RM1.05 post earnings revision, which is based on 20% holding company discount to its SoP. Our recommendation is premised on its attractive valuation coupled with above average dividend yield of >6%. Risk to our recommendation is unplanned outages leading to lower-than-expected earnings.

Source: Kenanga Research - 23 Aug 2021