9M15 results met expectations. We maintain our BUY call, earnings forecasts and MYR2.18 TP (35% upside). We like Malakoff for its solid earnings visibility backed by long-term power purchase agreements (PPAs), and strong growth prospects driven by a new power plant and potential export opportunities. Dividend yields are decent at 4-6%.

9M15 core net profit grew 38% YoY. Malakoff’s 9M15 net profit came in at 80%/78% of our full-year forecast and the full-year consensus estimates respectively. We consider the results within expectations after taking into consideration the volatility in the quarterly performance of its 40%-owned Kapar Power Plant (which reported reduced losses during 3Q15). Malakoff’s 9M15 net profit grew 38% YoY driven largely by: i) Tanjung Bin power plant’s higher capacity factor, and ii) higher contribution from Port Dickson Power with Malakoff’s acquisition of the remaining 75% stake in the peaking plant in Apr 2014.

Tanjung Bin Unit 4 operational by Mar 2016. Malakoff is confident that Tanjung Bin Unit 4 would meet its commercial operation date (COD) target of 1 Mar 2016. As at Oct 2015, completion of this green field 1,000 megawatt (MW) coal-fired plant stood at 98.10%, which was only 1.53ppts behind the scheduled completion of 99.63%.

Forecasts. We maintain our earnings forecasts.

Risks to our view: i) lower-than-expected plant availability achieved (due to unscheduled outages) resulting in reduced capacity payments, ii) interruptions in fuel supply, iii) delays in the completion of green field power plant projects, and iv) a sharp rise in interest rates.

Maintain BUY. We like Malakoff for: i) its strong earnings visibility backed by long-term PPAs signed with offtakers, ii) its earnings growth driven by Tanjung Bin Unit 4 that is expected to come on-stream in FY16, boosting its effective generating capacity by 17% to 7,036MW from 6,036MW, and iii) its export opportunities given the proximity to Singapore and Thailand and the availability of sites to accommodate more power plants. We keep our DCF-based TP at MYR2.18 which we derive from ascribing a discount rate that is equivalent to Malakoff’s WACC of 6.6% and a terminal growth rate assumption of 1.5%. Its dividend yields are decent at 4-6%.

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Source: RHB Research - 24 Nov 2015