MALAKOF’s 1HFY22 results met expectations. With the completion of repair works at TBE, earnings stability shall return, underpinning cash flow and hence its ability to dole out attractive dividend translating to c.7% yield. We maintain our forecasts but cut our TP by 8% to RM0.90 (from RM0.98) to reflect a higher risk-free rate. Maintain OUTPERFORM.

1HFY22 results meet expectation with core profit of RM145.0m, making up 52%/50% of house/street’s FY22 forecasts. Core earnings were adjusted for a c.RM25m gain in 2QFY22 arising from the difference between applicable coal price (ACP) and actual coal purchase price. It declared first interim NDPS of 2.8 sen (ex-date: 28 Sep; payment date: 27 Oct) in 2QFY22 vs. 3.1 sen paid in 2QFY21.

TBE back on track with repair work completed. 1HFY22 core profit fell 19% YoY to RM145.0m as 1QFY22 was affected by lower capacity payment from TBE due to unplanned plant outage arising from low-pressure turbine blade failure which spilled over from 4QFY21. With the completion of repair work and operation resuming on 14 Feb, 2QFY22 core profit jumped 85% QoQ to RM94.1m. Meanwhile, Alam Flora’s earnings were flattish at RM62.5m in 1HFY22 while associate income jumped 16% to RM103.6m in 1HFY22 owing to lower plant outage from Shuaibah and favourable gas margin and lower finance costs from Hidd Power.

Forecast. No changes.

Forward 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 generous dividends payout more sustainable.

Retain OUTPERFORM. With the solving of unplanned outage, its stable concession earnings could continue to sustain its above an average dividend yield of c.7%. We cut our TP by 8% to RM0.90 (from RM0.98) to reflect a higher risk-free rate. There is no adjustment to our TP based on ESG of which it is given a 3-star rating as appraised by us.

Risk to our recommendation include: (i) unplanned outages leading to lower capacity payment thus affecting earnings, and (ii) non-compliance of ESG standards set by various stakeholders.

Source: Kenanga Research - 24 Aug 2022