• Keep BUY, with new MYR1.06 TP (DCF) from MYR1.11, 33% upside and c.6% FY25F yield. Malakoff Corp’s 9M24 results missed expectations on higher cost base and unexpected plant outages after stripping one-off insurance claims, but still managed to turnaround led by normalising fuel margin impact and better Alam Flora contribution. Being an experienced independent power producer, we believe it is also well-positioned to benefit from the rising demand for energy over the long term.

• Below expectations. 9M24 core earnings of MYR168m came in below expectations after stripping off a MYR70 settlement of Tanjung Bin Energy (TBE) plant’s final insurance claims on Low-Pressure Turbine blade failure, MYR4m net FX loss, and MYR4m PPE write off. The negative deviation was largely due to higher cost base and major plant outage for Tanjung Bin Power (TBP) plant in 3Q24.

• Results review. 3Q24 core earnings fell 69% QoQ to MYR25m, mainly dragged by higher operation and maintenance costs and higher net realisable value provision for coal inventories as well as a major plant outage for TBP plant from 28 June-1 Sep 2024. Cumulatively, MLK managed to turnaround with core earnings of MYR168m in 9M24 from a MYR479m loss in 9M23, driven by improved contributions from TBP and TBE plants as a result of the lower weighted average coal costs following stabilisation of global coal prices coupled with stronger Alam Flora contribution.

• Outlook. The power purchase agreement (PPA) for 350MW Prai Gas Power Plant has been extended for a year until Aug 2025. In the longer run, there should be more new gas-fired plants to be developed. This is in line with the National Energy Transition Roadmap’s (NETR) projection, where gas will continue to be the anchor – being the dominant source of fuel for baseload power. MLK currently has 5.3GW of thermal capacity and targets to achieve 10GW by 2031 and, therefore, we expect them to add new gas capacity in the medium term. On the other hand, Alam Flora continued to develop its non- concession business as evident by a 5-year O&M contract win for Leachate Treatment Plant (LTP) in Jabor Jerangau, Pahang and a MOU signed with Blue Planet Environmental Solutions to strategically explore business opportunities in landfill rehabilitation, waste recovery, and treatment.

• BUY. We cut our FY24-26F earnings by 10%, 18%, and 18% after imputing higher cost base and the negative impact from unexpected plant outage. Hence, our DCF-based TP is lowered to MYR1.06 accordingly. Note that we have ascribed a 10% discount, based on our ESG score of 2.5.

Source: RHB Securities Research - 27 Nov 2024