3QFY21 net profit of RM67.2m met expectations with Alam Flora continuing to show resilient earnings while the core business IPPs were largely on track. Going forth, with the completion of the forced outage work in 2HFY20, earnings volatility is fairly low henceforth. As such, we continue to rate the stock an OP for its attractive >6% yield albeit with a slightly lower TP of RM1.01.

3QFY21 results matched expectations with core net profit rising 32% YoY to RM67.2m, bringing 9MFY21 net profit to RM245.3m which accounted for 77% of house/street’s FY21 estimates. No dividend was declared during the quarter as expected as it usually pays half-yearly dividend.

A weak sequential result… 3QFY21 core profit fell 43% to RM67.2m from RM117.7m, while revenue was flat at RM1.58b, as the preceding quarter benefited from higher fuel margin for TBP and TBE arising from higher applicable coal price (ACP) while the current quarter incurred higher O&M costs by RM13m. In addition, associate income saw lower share of profit by 6% to RM57.5m as Al-Hidd IWPP was impacted by higher O&M costs. Meanwhile, Alam Flora’s PAT was flattish at RM37.0m albeit revenue rose 3%.

Alam Flora led yearly earnings higher. YoY, 3QFY21 core profit leapt 32% to RM67.2m from RM50.8m in 3QFY20 which was attributable to higher ACP-led fuel margin by RM21m, higher Alam Flora’s contribution by RM16m and lower O&M costs by RM11m. YTD, 9MFY21 core profit jumped 16% to RM245.3m from RM211.9m on higher energy payment from TBE by RM27.7m as the IPP was hit by unplanned outages last year while Alam Flora reported PAT which surged 54% or RM35.0m over the year. 9MFY21 headline net profit was flat from RM244.9m in 9MFY20 which included c.RM33m GE claim settlement previously.

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 3QFY21 results, while keeping FY21 forecasts, we cut FY22 net profit by 8% as we raised effective tax rate to 30% from 25% to reflect the one-off prosperity tax. Accordingly, FY22E NDPS is trimmed correspondingly based on unchanged 80% payout assumptions.

Maintain OUTPERFORM for its undemanding valuation, following a more stable earnings with unplanned outage at TBE completed, coupled with its above average dividend yield of >6%. However, target price is lowered to RM1.01 from RM1.06 based on unchanged 20% holding company discount to its SoP, following earnings revision as well as rolling valuation base year to FY22 from RM21. Risk to our recommendation is unplanned outages leading to lower-than-expected earnings.

Source: Kenanga Research - 29 Nov 2021