Investment Highlights

• We maintain HOLD on Malakoff with a higher DCF-based fair value of RM0.79/share (WACC: 7.5%) vs. RM0.75/share previously. We have raised Malakoff’s DCF to account for the one-year extension of Prai’s Power Purchase Agreement with Tenaga Nasional. We have also increased Malakoff’s net profit by 2.6% for FY24E and 5.4% for FY25F.

• Our revised fair value implies FY25F PE of 13.6x. We attach a neutral 3-star ESG rating to Malakoff.

• Malakoff’s annualised 1HFY24 net profit of RM155.8mil was within consensus estimates and our original forecast. Included in Malakoff’s 1HFY24 net profit was a gain on disposal of land. The amount of the gain was not disclosed. We do not expect the gain on disposal of land to be repeated in 2HFY24.

• Malakoff turned around to a net profit of RM155.8mil in 1HFY24 from a net loss of RM394.4mil in 1HFY23 as fuel margin swung into gains from losses.

• Fuel margin gains were RM61mil YoY in 1QFY24. In contrast, Malakoff recorded a fuel margin loss of RM564mil in FY23 as coal prices plunged.

• Malakoff’s revenue edged down by 1.3% YoY to RM4.6bil in 1HFY24 due to lower energy payments resulting from the fall in coal and gas costs.

• We believe that capacity payments were intact in 1HFY24 as there were no major unplanned outages. However, TBP (Tanjung Bin Power) experienced a scheduled outage in 1QFY24, which resulted in its EAF (equivalent availability factor) falling to 72% in 1QFY24 from 96% in 4QFY23. TBE’s (Tanjung Bin Energy) EAF was 100% in 1QFY24.

• Alam Flora’s net profit rose by 4.9% YoY to RM61.3mil in 1HFY24 in spite of a plunge in the volume of non- concession waste. Volume of non-concession waste plummeted by 92% YoY in 1QFY24 as the Kepong Transfer Station and Cameron Highlands Mini Incinerator’s contracts with the government had expired.

• Alam Flora’s net profit margin edged up to 13.9% in 1HFY24 from 13.2% in 1HFY23.

• Malakoff is currently trading at a FY25F PE of 15.1x, which is marginally higher than its 2-year average of 14x.

Source: AmInvest Research - 29 Aug 2024