• Keep BUY, with new DCF-derived TP of MYR0.86 from MYR0.77, 14% upside and c.7% FY25F yield. Malakoff Corp’s 1Q24 results came in within expectations with a YoY turnaround led by normalising fuel margin impact and better Alam Flora contribution. We expect such earnings recovery trend to continue. Our call is largely premised on its decent dividend yield and resilient future earnings, anchored by the Alam Flora contribution and continuous plant stability.

• Within expectations. 1Q24 core earnings of MYR62m came in within expectations, accounting for 22% of our and Street full-year estimates. No dividend was declared, as expected.

• Results review. MLK returned to the black YoY with core earnings of MYR62m from a core loss of MYR76m in 1Q23. The turnaround was largely anchored by improved contributions from Tanjung Bin Power (TBP) and Tanjung Bin Energy (TBE) plants as a result of the lower weighted average coal costs following stabilisation of global coal prices coupled with lower finance costs. QoQ wise, core earnings fell 11% due to lower Alam Flora contribution and negative fuel margin impact.

• Outlook. We expect the turnaround in 1Q24 to continue in FY24 on the back of normalisation of fuel margin impact driven by stabilisation of coal prices. The PPA for 350MW Prai Gas Power Plant is expiring at the end of this year and MLK is in discussion with the regulator for a potential extension. It recently proposed to acquire a 51% stake in ZEC Solar and 49% stake in TJZ Suria. ZEC Solar owns a 29MW Large Scale Solar facility in Kota Tinggi (contacted under 21-year PPA and O&M contract until 2040) for MYR27m. This would lift its net renewable energy or RE portfolio to 168MW. Meanwhile, the installation works and testing & commissioning activities of the 2% biomass co-firing system were successfully completed on 8 Mar 2024. The biomass co-firing ratio will gradually increase to 3-5% by next year, with a target of reaching at least 15% by 2027. On the other hand, Alam Flora continued to contribute stable earnings of MYR21.8m (+3% YoY) and total recyclable material collected increased by 18% YoY in 1Q24.

• BUY. Our earnings estimates remain largely unchanged but our DCF-based TP is lifted to MYR0.86 from MYR0.77 after rolling our valuation base year to FY25F. Note that we have ascribed a 10% discount, based on our ESG score of 2.5. Downside risks: Unscheduled outages, higher operating costs, and disruption in fuel supply.

Source: RHB Research - 30 May 2024