Chunky one-off items in 3QFY24

At its recent analyst briefing, management clarified that Malakoff Corporation Berhad’s (MALAKOF) latest 3QFY24 result contained lumpy one-off items namely:

(i) A RM70mn recognition of TBE’s final insurance claim on a lowpressure turbine blade failure.

(ii) A -RM20mn non-cash provision for coal net realisable value, which essentially marks to market the group’s coal inventories.

(iii) Additional -RM20mn maintenance cost provision related to TBP outage between 28 June 2024 until 1 September 2024.

(iv) A -RM16mn negative fuel margin.

In addition, there was an -RM18m reduction in capacity income during the quarter from Prai Power Plant, which only commenced its 1-year PPA extension from September 2024.

Excluding the impact of TBE’s insurance claim recognition and provision for coal NRV (as well as asset write-offs and net forex loss that were adjusted earlier), MALAKOF’s 9MFY24 core earnings of RM184mn would have accounted for 69% of our full year forecast, which we deem in-line with expectations as we expect 4QFY24 to strengthen on full quarter impact of Prai Power plant’s PPA extension and in the absence of additional maintenance cost for TBP which has been resolved in 3QFY24.

Power plant proposals

There were no new updates regarding the group’s two proposed CCGT projects with combined capacity of 2800MW. One of the projects is in the midst of fulfilling Initial Letter of Notification requirements, while the other is awaiting clarifications from the relevant ministry. Other than these, MALAKOF is in communication with the Energy Commission regarding a potential recommissioning of the 640MW GB3 power plant, which expired in 2022. We understand that negotiations revolve around the plant’s technical feasibility for extension, potential tariffs and major refurbishments required if a longer-term extension is required.

Valuation

We maintain our Buy call on MALAKOF at unchanged SOP-derived TP of RM1.05/share. We see further upside to valuations if MALAKOF successfully secures new capacity. As a yardstick, we estimate every 1GW of new capacity secured could enhance valuations by ~20sen/share, assuming 6%-7% project IRR and a 21-year PPA tenure. A tight demand-supply condition in the electricity market could lead to better-than-expected IRR which spells further upside.

From a valuation standpoint, MALAKOF is currently trading at 4.9x FY25F EV/EBITDA, at a discount to historical mean of 5.2x. We reckon valuations could re-rate higher towards +1SD (6.1x EV/EBITDA) given the tight electricity market condition and improving prospects of capacity replenishment. Dividend yield remains attractive at 5.6%-6.9% throughout our forecast horizon.

Source: TA Research - 2 Dec 2024