Review

• Malakoff Corporation Berhad (MALAKOF) registered a lacklustre 2QFY23 result. 1HFY23 core net loss of RM401.2mn came in much below expectations, trailing our and consensus’ previous full-year forecasts of RM370.4mn and RM190.0mn respectively. The earnings miss was mainly attributed to a sharp decline in coal prices leading to a much worse than expected impact from negative fuel margin.

• The group declared a first interim dividend of 1.5sen/share (2QFY22: 2.8sen/share).

• YoY: MALAKOF registered LBT of RM453.7mn in 2QFY23 compared with PBT of RM196.6mn in 2QFY22 due to significant negative fuel margin following the reduction in coal prices and lower share of profit from associates and joint ventures. Note that the negative fuel margin recorded at Tanjung Bin Energy (TBE) and Tanjung Bin Power (TBP) were RM556.2mn and RM14.9mn respectively.

• QoQ: MALAKOF’s LBT in 2QFY23 worsened compared with LBT of RM84.4mn in 1QFY23 mainly attributed to much higher negative fuel margins and higher operation and maintenance costs. The negative fuel margin recorded at TBE and TBP were RM87.4mn and RM17.5mn respectively.

• 1HFY23: Revenue surged 10.7% YoY on the back of higher capacity payment from shorter plant outage for TBE and higher energy payment due to higher electricity demand. However, the group recorded LBT of RM538.2mn in 1HFY23 compared with PBT of RM294.8mn a year ago mainly driven by negative fuel margin mentioned above.

Impact

• After factoring in the impact of negative fuel margins, we slash our earnings forecasts for FY23/ FY24/ FY25 to -RM319.7mn/ RM313.2mn/ RM384.5mn respectively.

Outlook

• Following the stabilisation of coal price since May 2023, we believe the worst of negative fuel margin for MALAKOF is over. We expect the group to turn into the black in 2HFY23.

• Meanwhile, the group has achieved financial close on RP Hydro Kelantan Sdn Bhd, an 84MW run-of-river small hydropower plant project to be developed in Kelantan. The project will mark the group’s first venture into the hydropower segment and should provide MALAKOF valuable experience in hydropower projects.

Valuation

• Following the revision in our earnings forecasts, we downgrade MALAKOF to Hold with a lower target price of RM0.67/share (previous: RM0.78/share) based on sum-of-parts valuation.

Source: TA Research - 29 Aug 2023