Investment Highlights

• We affirm BUY on Malakoff with a higher DCF-based fair value of RM0.87/share vs. RM0.79/share previously (WACC: 7.5%) with an unchanged 3-star ESG rating.

•  Malakoff’s 9MFY22 core net profit (ex-impairment on associate and financial assets of RM207mil) was 88% above our forecast and 68% above consensus. Malakoff’s results exceeded expectations due to higher energy payments resulting from a surge in coal costs in 3QFY22 and a lower interest expense. We raise Malakoff’s FY22E core net profit by 88% to reflect these.

• TBP’s (Tanjung Bin Power plant) energy payments surged by 58% to RM1.8bil in 3QFY22 from RM1.1bil in 2QFY22. Also, TBP’s average equivalent availability factor (EAF) improved to 88% in 3QFY22 from 80% in 2QFY22. This resulted in a 10% increase in capacity payments.

• In spite of the strong 3QFY22, we expect Malakoff’s net profit to soften in 4QFY22. This is due to a 45-day planned outage at TBE (Tanjung Bin Energy power plant). The planned outage is expected to increase repair and maintenance expenses.

• Malakoff’s core net profit jumped by 77% YoY to RM468mil in 9MFY22 on the back of higher energy and capacity payments at TBP. This compensated for the forced outage at TBE in 1Q. The forced outage reduced TBE’s capacity payments by 60% YoY in 1QFY22.

• Due to the outage in 1QFY22, TBE’s EAF fell to 80% in 9MFY22 from 85% in 9MFY21. TBE’s EAF was a low 50% in 1QFY22. Since 1QFY22, TBE’s EAF has improved to 92% in 2QFY22 and 98% in 3QFY22.

• Alam Flora’s net profit slid by 4% YoY to RM95mil in 9MFY22, dragged by an increase in fleet maintenance costs. Net profit margin inched down to 14.7% in 9MFY22 from 16.2% in 9MFY21.

• Alam Flora’s net profit improved by 16% QoQ to RM33mil in 3QFY22 due to higher volume of waste handled. Net profit margin rose to 14.9% in 3QFY22 from 13.3% in 2QFY22.

• Share of net profit in associates (mainly Shuaibah assets in the Middle East) expanded to RM161mil in 9MFY22 from RM147mil in 9MFY21 in the absence of outages.

• Malakoff is currently trading at a FY23F PE of 8x, which is lower than its 2-year average of 14x and offers compelling dividend yields of 8%-9%.

Source: AmInvest Research - 30 Nov 2022