Secures One-Year PPA Extension for Prai Power Plant

Malakoff Corporation Bhd (MALAKOF) announced that it has secured a oneyear extension for its Prai Power Plant operation commencing on 1 September 2024 and expiring on 31 August 2025. In line with the extension, MALAKOF has signed a power purchase agreement (PPA) with Tenaga Nasional Bhd (TENAGA) for a period of one year with an option to extend for another year subject to system requirements. For context, MALAKOF’s Prai Power Plant is a 350MW combined cycle gas turbine (CCGT) power plant commissioned in 2003 under a 21-year PPA, originally.

Awaiting Further Details on the New PPA Terms

This development follows MALAKOF’s earlier application to extend Prai Power Plant’s PPA, which expired in Jun 2024 and was a result of a restricted tender called by the Energy Commission in Apr 2024 to secure short-term capacity extension from recently expired as well as expiring generators in the system. No further details were revealed on the terms of the PPA extension such as tariffs. However, we reckon the new terms could be lower than under the original PPA considering that the asset has been fully depreciated, debt fully repaid, and returns recouped under the original 21-year PPA. We estimate circa RM20m- 30m potential earnings impact based on the assumption of lower capacity payment for the extension versus the original Tier-2 capacity rate financial (CRF) for the Prai Power Plant.

No Changes to Forecasts for Now

We make no changes to our earnings forecasts for now, but based on our initial estimates, we reckon the one-year PPA extension for Prai Power Plant could potentially impact MALAKOF’s earnings by 8%-12% on annualised basis, albeit the impact will be short-term in nature. We await further details from the upcoming analyst briefing tomorrow before modelling in the extension into our projections.

Valuation

Our Hold rating for MALAKOF is now under review pending MALAKOF’s analyst briefing tomorrow. However, we note that MALAKOF’s share price has rallied strongly prior to this announcement and the stock is now trading at 5.4x FY25 EV/EBITDA, at a slight premium to historical mean of 5.2x. Our sum-ofparts derived target price remains unchanged for now at RM0.80/share. While valuations appear stretched, dividend yields are attractive at 5.1%-6.3% yield over our forecast horizon.

Source: TA Research - 28 Aug 2024