1QFY22 results missed forecasts again, with net profit falling 33% sequentially to RM50.9m, owing to the continued unplanned outage activity at TBE. However, the repair has been completed in mid-Feb; hence, earnings volatility for the group is fairly low, henceforth. With its undemanding valuation at -1SD to 3-year mean coupled with >7% yield, we maintain our OP rating on the stock with a lower TP of RM0.98.

1QFY22 results below forecasts with core profit of RM50.9m making up 18% of ours as well as consensus’. This is owing to continued lower contribution from TBE which was impacted by plant outage caused by lower-pressure turbine blade failure. No dividend was declared in 1QFY22 as expected as it usually pays half-yearly dividend.

TBE’s plant outage continued. 1QFY22 core profit contracted 33% to RM50.9m from RM76.4m in the preceding quarter given lower contribution from Alam Flora (to RM34.3m PAT from RM48.1m) while TBP earnings were impacted by lower fuel margin on higher weighted average fuel costs. Meanwhile, 1QFY22 results were also affected by lower capacity payment from TBE due to unscheduled plant outage arising from low-pressure turbine blade failure which spilled over from 4QFY21.

Flattish YoY earnings operationally. Despite revenue rising 39% which was led by higher energy payments on higher applicable coal price, 1QFY22 core profit fell 16% YoY to RM50.9m from RM60.4m last year. This was largely attributable to higher taxation (+24% or RM5.4m) and minority interest (+40% or RM5.4m). However, at pre- tax level, its profit before tax inched up slightly by 1% to RM97.9m from RM96.7m. Meanwhile, Alam Flora earnings grew 34% to RM34.3m from RM25.5m previously.

FY22 earnings to remain stable. The repair work for forced outage at TBE in 4QFY21-1QFY22 was completed on 14 Feb 2022 while Alam Flora has been posting improving results quarter after quarter since early 2020. All these ensure MALAKOFF earnings’ certainty, making its dividends payout more sustainable. Post 1QFY22 results, to adjust for TBE’s outage, higher minority interest and updated latest FY21 actual data, we trimmed FY22E/FY23E earnings by 7%/2% with dividend adjusted proportionally based on unchanged payout of 80%.

Retain OUTPERFORM. With the solving of unplanned outage, its stable concession earnings could continue to sustain above an average dividend yield of >7% while its valuation remains undemanding at 11x which is 1.0SD below its 3-year mean. As such, the stock remains an OUTPERFORM with a lower target price of RM0.98, from RM1.01, which is based on unchanged 20% holding company discount to its SoP. Risk to our recommendation is unplanned outages leading to lower-than-expected earnings.

Source: Kenanga Research - 25 May 2022