This article first appeared in The Edge Financial Daily on November 22, 2019
Malakoff Corp Bhd
(Nov 21, 88.5 sen)
Maintain buy with an unchanged fair value (FV) of RM1: Malakoff Corp Bhd’s cumulative nine months of financial year 2019 ended Sept 30 (9MFY19) core results were within our expectations and consensus estimates. Included in Malakoff’s third quarter of FY19 (3QFY19) reported net profit was a RM30 million gain on remeasurement of existing investments in Shuaibah assets in the Middle East.
Although Malakoff would be losing earnings from the Macarthur Wind Farm for forecast FY20 (FY20F), we believe this would be compensated by higher interest income from the disposal proceeds and an increase in its share of net profit from associates. Hence, we have not revised Malakoff’s FY20F net profit yet. We have not accounted for the disposal of the Macarthur Wind Farm in Malakoff’s FY20F net profit.
We forecast Malakoff’s share of net profit from associates to increase by more than 5% for FY20. The acquisition of an additional 12% effective stake in the Shuaibah assets in the Middle East was completed in September.
The A$356.9 million (RM1.01 billion) disposal of the MacArthur Wind Farm is expected to be completed in 1QFY20. The wind farm accounted for RM56.6 million or 20.6% of Malakoff’s reported net profit for FY18.
After a weak 2QFY19, which was dragged down by losses from 40%-owned the Kapar Energy Ventures (KEV) power plant and a high effective tax rate of 47.7%, Malakoff’s core net profit rebounded by 23.4% to RM64.5 million for 3QFY19.
Malakoff’s share of losses from KEV declined to RM15.5 million for 3QFY19 from RM19.8 million for 2QFY19. Comparing 9MFY19 against 9MFY18, however, its share of losses from KEV widened to RM42.4 million from RM32.9 million. We understand that KEV is facing operational issues as it is an old power plant.
Malakoff’s effective tax rate slid to 18.9% in 3QFY19 from a high of 47.7% in 2QFY19. The effective tax rate was 34.4% in 9MFY19 versus 43% in 9MFY18. The Tanjung Bin Energy (TBE) power plant is back on track after a 73-day shutdown (from March 31 to June 12) for maintenance and rectification works. TBE’s equivalent availability factor rose to 96% in 3QFY19 from a low of 14% in 2QFY19. Energy payments climbed to RM254.6 million in 3QFY19 from RM37.2 million in 2QFY19. In 3QFY19, TBE accounted for 29.6% of Malakoff’s capacity payments (2QFY19: 28.3%) and 21.2% of energy payments (2QFY19: 3.2%).
We reiterate our “buy” call on Malakoff with an unchanged FV of RM1 (weighted average cost of capital: 7.6%). Malakoff is currently trading at a FY20F price-earnings ratio of 17.5 times. We forecast a gross dividend per share of five sen from Malakoff for FY19 and FY20, translating into a decent dividend yield of 5.6% for each year. — AmInvestment Bank, Nov 21