What’s new?

MALAKOF has entered into a conditional sale and purchase agreement to dispose of its entire 100% stake in Malakoff Utilities Sdn Bhd (MUSB) to KJ Technical Services Sdn Bhd (a wholly-owned subsidiary of KJTS Group Berhad) for a total cash consideration of RM65.5mn.

MUSB was established to undertake development of the electricity distribution system and district cooling system for KL Sentral, which encompasses a total area of 291,374 square meter. Commencing in year 2000, MUSB has been the exclusive electricity distributor within KL Sentral and its surrounding developments with a capacity of up to 153MW. In addition, MUSB owns and operates a district cooling system plant that supplies chilled water for the air conditioning needs of 10 buildings within the KL Sentral commercial and residential transit hub.

The transaction is expected to be completed by 2Q25 subject to: (i) Written consent of Kuala Lumpur Sentral Sdn Bhd, (ii) Written approval of the Ministry of Energy Transition and Water Transformation, (iii) KJTS Group Berhad shareholders’ approval.

Our view

The latest corporate exercise is seen as a move to dispose MALAKOF’s noncore asset. At implied trailing (FY23) PER of 63.5x and PBV of 1.2x, we reckon MALAKOF is getting a good deal from the transaction, along with the potential of recognising a one-off gain from the sale depending on the latest carrying value of the asset.

The move is also expected to allow MALAKOF to redeploy its capital into more profitable businesses relative to MUSB which historically generated ROE of just 1.9%-2.7% based on available FY21-23 financial information.

Impact

We leave our projections unchanged pending completion of the sale. On preliminary estimates, we foresee minimal change to our earnings forecast as the absence of earnings contribution from MUSB could be offset by incremental interest income from the sale proceeds in the short-term.

Valuation

We maintain our Buy call on MALAKOF at unchanged SOP-derived TP of RM1.06/share given improved prospects of capacity replenishment on the back of tightening demand-supply 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 5.1%-6.3% throughout our forecast horizon.

Source: TA Research - 4 Feb 2025