Investment Highlights

• We maintain BUY on Malakoff with an unchanged fair value of RM1.00/share (WACC: 7.6%).

• Malakoff has declared a final gross DPS of 4.1 sen for 4QFY19, which brings total gross DPS to 6.5 sen for FY19 (FY18: 5.6 sen).

• We forecast a gross DPS of 5.5 sen for FY20F, which implies a yield of 6.1%. Malakoff was able to pay higher dividends in FY19 as it recorded cash inflows of almost RM988mil from the disposal of its 50% stake in MacArthur Wind Farm.

• Our FY20F net profit forecast for Malakoff is relatively unchanged. We have accounted for Alam Flora’s earnings contribution in Malakoff’s FY20F net profit. Recall that the acquisition of Alam Flora was completed in December 2019.

• Included in Malakoff’s FY19 reported net profit of RM275.3mil were a RM556.6mil gain on the disposal of MacArthur Wind Farm (recognised in 4QFY19) and a RM30mil gain on the remeasurement of the Shuaibah assets in the Middle East (recognised in 3QFY19).

• These two more than offset a RM433.3mil impairment on Malakoff’s 40% investment in Kapar Energy Ventures (KEV). Malakoff said it has fully impaired its investment in KEV.

• Malakoff’s FY19 core net profit was below our expectations and consensus estimates as the group’s share of profits in associates turned to losses in 4QFY19.

• Malakoff recorded a share of loss in associates of RM66.1mil in 4QFY19 vs. a profit of RM18.2mil in 3QFY19 as losses in KEV widened.

• Comparing FY19 against FY18, the share of contribution in Malakoff’s associates (KEV, Shuaibah and others) swung to a loss of RM21.6mil from a profit of RM83.7mil.

• Malakoff’s share of net losses in KEV widened to RM130.3mil in FY19 from RM32.2mil in FY18. KEV was hit by an unplanned outage resulting from a turbine issue and a downward revision in its DCF valuation. KEV’s cash flows had to be revised downwards to account for higher capex and lower capacity payments.

Source: AmInvest Research - 20 Feb 2020