FY21 core profit of RM321.7m is on track with Alam Flora continuing to show resilient earnings while share of profits of foreign associates has also posted earnings uptick over the year. Going forth, with the completion of the forced outage work at TBE, earnings volatility is fairly low henceforth. As such, we maintain the stock an OP with TP at RM1.01 for its attractive >6% yield.

4QFY21 results met expectations with core profit rising 14% sequentially to RM76.4m, bringing FY21 core profit to RM321.7m that came 2% above our forecast but 1% below consensus. It reported that a final NDPS will be made upon the conclusion of its audited financial statement next month. It had already paid 3.1 sen in 1st NDPS in 2QFY21. Based on our FY21 NDPS forecast of 5.1 sen, a final NDPS would amount to 2.0 sen. In FY20, it paid a total NDPS of 5.1 sen as well.

Big one-off adjustment quarter. 4QFY21 headline net profit hit RM22.7m. After adjusting for write-off of SEV’s deferred expense of RM146m (after tax) and Alam Flora’s reversal of liabilities of RM80m (after tax), 4QFY21 core profit was 14% higher QoQ to RM76.4m from RM67.2m. This was driven by higher contributions from TBP and Alam Flora. Meanwhile, TBE experienced lower capacity payment owing to unscheduled plant outage due to low-pressure turbine blade failure.

Alam Flora led yearly earnings higher. YoY, 4QFY21 core profit jumped 83% from RM41.6m which was largely due to the similar higher contributions from TBP and Alam Flora as well as foreign associate incomes. YTD, FY21 core profit jumped 27% to RM321.7m from RM253.5m in FY20 while revenue grew 3%. Again, this was driven especially by Alam Flora with PAT surging 55% (or RM52.3m higher) after adjusting for the RM80m reversal mentioned above while associate income also leapt 14% or RM24.8m.

FY22 earnings to remain stable. The repair work for forced outage at TBE in 4QFY21 had completed while Alam Flora has been posting improving results quarter after quarter since the earnings inclusion in early 2020. All these ensure MALAKOFF earnings certainty, making its dividends payout more sustainable. Post 4QFY21 results, while keeping FY22 forecasts, we introduce FY23 new estimates with earnings set to grow at 6% and with similar 80% dividend payout assumptions.

OUTPERFORM maintained. With improved earnings certainty, its stable earnings could continue to sustain its above average dividend yield of >6% while its valuation remains undemanding at 12x which is 1.0SD below its 3-year mean. As such, the stock remains an OUTPERFORM with unchanged target price of RM1.01 which is based on 20% holding company discount to its SoP.

Risk to our recommendation is unplanned outages leading to lower-than-expected earnings.

Source: Kenanga Research - 24 Feb 2022