We left Malakoff Corporation Bhd’s (MALAKOF) virtual analyst briefing with the following key takeaways: i) Increased repair cost impacted Alam Flora’s margins; ii) Full capacity payment at TBE by December 2023; iii) Expect further improvement in performance QoQ in 4QFY23. No change to our earnings forecasts. Maintain Buy with an unchanged target price of RM0.75/share based on sum-of-parts valuation. The group currently offers an attractive dividend yield of 7%-8% for FY24-FY25 based on our forecasts.

Increased Repair Cost Impacted Alam Flora

Alam Flora experienced margin squeeze in 3QFY23, with PAT margin dropping 3.0%-pts QoQ and 4.4%-pts YoY respectively to 10.5% despite flattish revenue. Management revealed that the margin squeeze was mainly driven by increasing operating costs, particularly repair costs as Alam Flora’s fleets are aging. The group is in the process of replacing the older fleets and we expect this should gradually lower the operating costs and hence improve the PAT margin moving forward.

Full Capacity Payment at TBE by December 2023

Recall that Tanjung Bin Energy (TBE)’s capacity payment has been impacted since encountering a forced outage due to low pressure turbine failure back in November 2021 (Figure 3). According to management, the unscheduled outage rate (UOR) at TBE is currently at 8.23% and is expected to return to below the unscheduled outage level (UOL) of 6% by December 2023 to be entitled for full capacity payment.

Expect Further Improvement in Performance QoQ in 4QFY23

As the coal prices, particularly the more volatile benchmark Newcastle coal prices have stabilised since June 2023, we expect negative fuel margins to continuously ease (Figure 4). Management guided that they are expecting a small loss or a small profit for the group in 4QFY23, depending on the trend of coal prices. This is an improvement from LATMI of RM85.6mn in 3QFY23 after a disappointing LATMI of RM318.7mn in 2QFY23.

Impact

No Change to Our Earnings Forecasts.

Valuation

Maintain Buy with an unchanged target price of RM0.75/share based on sumof-parts valuation. The group currently offers an attractive dividend yield of 7%- 8% for FY24-FY25 based on our forecasts.

Source: TA Research - 28 Nov 2023