(Aug 12): Shares of Malakoff Corporation Bhd (KL:MALAKOF) surged to their highest level in nearly four years on Monday as analysts flagged potential short-term power purchase extensions by the government for one of its power plants.

Malakoff climbed by as much as 18% or 15.5 sen to RM1, its highest since Oct 21, 2020. The stock closed at 99.5 sen, giving the company a market capitalisation of RM4.86 billion after five consecutive days of rallying. Trading volume soared to 48.49 million shares, more than 16 times the 200-day moving average.

Affin Hwang Investment Bank is the latest to highlight that the government may announce short-term extensions of power purchase agreements. Further, authorities could also call for tenders for new combined cycle gas turbine plants by the end of 2024 or early 2025, the research house noted. 

Malakoff - the largest independent power producer in peninsular Malaysia with an effective capacity of 5.3 gigawatts and a market share of 21% - is expected to benefit from rising electricity demand and increased investment in the sector, Affin Hwang said.

The house also raised the target price for Malakoff to RM1.10 from 90 sen while also citing ample opportunities in power generation that would improve the company’s long-term outlook, leading to a re-rating of its share price.

The company did not immediately respond to The Edge’s request for comment.

Shares of Malakoff have climbed 57% so far this year, which has lifted the stock above the consensus target price of 88.5 sen, thanks partly to a frenzy driven by a slew of new data centre projects in the country.

Analysts are broadly bullish on Malakoff with seven out of 12 research houses tracking the group recommending ‘buy’ while four have assigned a ‘hold’ rating and the stock has only one ‘sell’ call, according to Bloomberg.  

Last week, UOB Kay Hian also raised the possibility of an extension to some of the power purchase agreements to help the country tide over the surge in electricity demand from incoming power-hungry data centre projects.

A short-term extension on Malakoff’s 350 megawatt gas-fired power Prai plant could provide at least RM100 million in cash flow, the research house said.

Malaysia’s grid may require an estimated 15 gigawatt of new capacity by 2035 to meet demand growth, as well as to maintain optimum reserve margin for system reliability. The plants will mostly be powered by thermal and renewable energy.

The country relies on fossil fuels including coal and natural gas for 81% of its electricity. Hydropower provides most of the renewable energy while solar and wind accounts for less than 5% of the share.

In the next 12 months, Malakoff is expected to be awarded a 2,800 megawatt gas-fired plant which will boost its generation capacity by 40%, UOB Kay Hian, which also has a ‘buy’ call on Malakoff, said last week. 

https://www.theedgemarkets.com/node/722510