Investment Highlights

• We maintain BUY on Malakoff with an unchanged DCF- based fair value of RM0.75/share (WACC: 7.5%). Malakoff’s net profit is expected to normalise to the RM200mil to RM300mil level in FY24F in the absence of fuel margin losses. We ascribe a neutral 3-star ESG rating to Malakoff. Our fair value implies a FY24F PE of 14x.

• Malakoff will announce its final DPS upon the finalisation of its audited financial statements in March 2024. So far, the group has declared a gross DPS of 1.5 sen.

• Malakoff’s results were below our forecast and consensus due to recognition of losses and further impairment loss on its investment in 40%-owned Al-Hidd. Malakoff reported a larger net loss of RM837.2mil in FY23 compared to our forecast of RM474mil and consensus estimates of RM499.7mil.

• Malakoff recorded an impairment of RM94.1mil on Al-Hidd and recognised share of losses in associates of RM201.1mil in FY23 (FY22: share of profit of RM276.4mil).

• Excluding the impairment and share of losses in Al-Hidd, Malakoff would have reported a net profit of RM72mil in 4QFY23. This would have been above our expectations and consensus estimates.

• Malakoff swung into a negative EBIT of RM166.7mil in FY23 from a positive RM1.4bil in FY22 due to fuel margin losses of more than RM900mil. The fuel margin loss came about as the coal inventory, which were purchased at high prices in FY22 had to be marked to market at significantly lower prices in FY23.

• Malakoff’s revenue shrank by 12.4% to RM9.1bil in FY23 as energy payments declined and GB3 power plant’s PPA expired at the end of FY22. GB3 accounted for 11.5% of Malakoff’s capacity payments in FY22.

• Alam Flora’s net profit rose by 9% to RM112.6mil in FY23 due to an increase in non-concession jobs, which command higher margins. Net profit margin inched up to 12.8% in FY23 from 11.8% in FY22.

• On a QoQ basis, Alam Flora’s net profit improved by 35.7% to RM31.2mil in 4QFY23 as the volume of waste handled increased. Net profit margin was 14.3% in 4QFY23 vs. 10.5% in 3QFY23.

• Malakoff is currently trading at a FY24F PE of 12x, which is below its 2-year average of 14x.

Source: AmInvest Research - 26 Feb 2024