We recently visited Malakoff Corporation Bhd’s Fasiliti Inovasi Kitar Semula (FIKS) in Putrajaya. FIKS is a one-stop education centre on recycling process, waste recovery and waste treatment. The group continues to explore opportunities in concession and non-concession business in the Environmental Solutions segment. Meanwhile, we understand that the group is in the final stage of discussion regarding the WTE plant in Melaka. The plant’s concession period will be for 30 years with estimated high single digit equity IRR. We expect the WTE plant to provide positive but minor contribution to MALAKOF’s bottomline from FY27 onwards. No change to our earnings forecasts. Considering the more positive outlook for the Environmental Solutions segment, we take this opportunity to lower the discount rate for Alam Flora. Maintain Buy with a higher TP of RM0.75/share based on sum-of-parts valuation.

One-stop Centre About Recycling Process and Waste Management

We recently visited Malakoff Corporation Bhd’s (MALAKOF) Fasiliti Inovasi Kitar Semula (FIKS) in Putrajaya. FIKS is a one-stop education centre on recycling process and waste management. FIKS has a few areas, including the hab ilmu which is an information hub about recycling (Figure 3), a 300-400MT monthly capacity integrated recycling facility (Figure 4, 5), a buyback centre that buys recyclable goods, an anaerobic digestor that produces biogas and electricity from food wastes (Figure 6) and many more.

Exploring Opportunities in Concession and Non-concession Business

In terms of concession business for the group’s environmental solutions segment, MALAKOF, via Alam Flora, is exploring growth opportunities through expanding the collection areas, tendering for public cleansing and waste collection projects, and addressing the state’s facilities issues such as landfills.

As for the non-concession business, the group plans to expand in the scheduled waste operations, integrated waste management facilities, and facilities management. Scheduled waste is any waste that has hazardous characteristics and has the potential to negatively impact the public and the environment such as chemical wastes. Some targets of expansion within the scheduled waste management include Port Reception Facilities (PRF) in Johor Ports (expected to be operational by the end of this year, in addition to Northport where it is already operating), Integrated Eco-Recovery Complex (IERC) to support circular economy, and Sustainable Facility and Eco-Park Centre in both Perak (for Northern Region) and Terengganu (for Eastern Region). We understand that currently, the scheduled wastes from Northern and Eastern Regions have to be transported to Kualiti Alam Waste Management Centre in Negeri Sembilan, the only integrated hazardous waste management centre in Malaysia.

Converting Waste Into Energy

MALAKOF is in the final stage of discussion regarding the waste-to-energy (WTE) plant in Melaka. With expected concession period of 30 years, the WTE plant will be built next to the Sungai Udang Sanitary landfill and will have a waste management capacity of 960 tonnes per day and installed power capacity of 22.1MW. The plant will be under a build-operate-transfer model, with MALAKOF decommissioning the plant at the end of concession. The revenue source will be tipping fee payment (circa RM80-100/tonne) and sale of electricity (circa 42sen/kwh) via a 21-year power purchase agreement. Equity internal rate of return (IRR) is estimated to be high single digit while project IRR is around mid-single digit. The WTE plant’s project cost is around RM760mn and is expected to take 3 years to complete construction, testing and commissioning. MALAKOF is hopeful of finalising the concession agreement by 1QFY24. Hence, we expect the WTE plant to provide positive but minor contribution to MALAKOF’s bottomline from FY27 onwards.

Impact

No Change to Our Earnings Forecasts.

Valuation

Considering the more positive outlook of MALAKOF’s Environmental Solutions segment, we take this opportunity to lower the discount rate for Alam Flora from 15% to 12%. Maintain Buy with a higher TP of RM0.75/share (previous RM0.67/share) based on sum-of-parts valuation.

Source: TA Research - 21 Nov 2023