What’s new?

After several delays, MALAKOF announced that it has completed the acquisition of the remaining 51% stake in ZEC Solar Sdn Bhd and the remaining 49% stake in TJZ Suria Sdn Bhd from Zelleco Engineering Sdn Bhd. The acquisitions entail a total purchase consideration of RM27mn. Post-acquisition, both companies will be direct and indirect wholly owned subsidiaries of MALAKOF.

ZEC Solar is the owner and developer of an LSSPV facility with a capacity of 29MW, located in Kota Tinggi, Johor under the Large-Scale Solar (LSS) program with a 21-year Solar Power Purchase Agreement effective until 2040. TJZ Suria currently operates and maintains the LSSPV Facility under a 21-year Operation and Maintenance (O&M) contract with ZEC Solar.

Our view

We are mildly positive on the latest development as the acquisition increases MALAKOF’s effective RE capacity to ~128MW from 113MW previously. This will contribute to the group’s target of achieving 1400MW RE capacity by 2031.

In terms of earnings, we expect a mild +0.6% impact from the incremental stake, assuming ZEC Solar’s project was constructed at a capex of RM4.5-5.0mn/MWac and is able to achieve a project IRR of mid-to-high single digit. We also take into consideration the fact that lowest & mean tariff bids during LSS1 were as high as 39sen & 45sen per kwh. The acquisitions should have little impact to the group’s balance sheet considering the group’s RM1.8bn gross cash position as at end-3QFY24.

Impact

We tweak FY25F/26F net profit higher by +0.6%/+0.6% to factor in the impact of the incremental stake in ZEC Solar and TJZ Suria.

Valuation

Our SOP-derived TP is tweaked slightly higher to RM1.06/share from RM1.05/share previously. We maintain our Buy call on MALAKOF given improved prospects of capacity replenishment on the back of tightening demandsupply in the generation market. As a yardstick, we estimate every 1GW of new (CCGT) capacity secured could enhance valuations by ~20sen/share, assuming 6%-7% project IRR and a 21-year PPA tenure. From a valuation standpoint, MALAKOF is currently trading at 4.9x FY26F EV/EBITDA, at a discount to historical mean of 5.2x. Dividend yield remains attractive at 5.2%-6.3% throughout our forecast horizon.

Source: TA Research - 3 Feb 2025