4 days ago
Strong power demand to fuel Malakoff prospects
PETALING JAYA: The RM40mil provision Malakoff Corp Bhd made for its coal inventory in the second half of the year (2H25) may be reversed to some extent in the second half of the year should coal prices rise.
The independent power producer (IPP) made the provision in its first quarter ended March 31, 2025 (1Q25) financials which resulted in its earnings for the period falling 45% year-on-year (y-o-y) to RM34mil.
OUB Kay Hian (UOBKH) Research expected Malakoff to write back some of the provisioning in the later part of the year should coal prices recover.
Malakoff's revenue for the quarter eased 11% y-o-y to RM2bil due to lower dispatch because of lower economic activity in Peninsular Malaysia in the period, it added.
Its overall dispatch to the grid was also lower by 6% y-o-y with lower offtake for its gas-fired power plants.
'The coal-fired power plants experienced lower energy payment due to a drop in coal prices,' the research house stated in a report following the release of the IPP's 1Q25 results.
UOBKH Research lowered its net profit forecast for Malakoff for financial year 2025 (FY25) by 9% to capture the RM40mil provisioning and it expected the company to post a net profit of RM276mil for the year, which would be relatively flat y-o-y.
It however kept its 'buy' rating on Malakoff with a target price (TP) of RM1.08 a share.
'In arriving at our TP, we have included a 1,400MW thermal power plant win. Our blue-sky fair value is RM1.25 per share, in the event Malakoff wins two 1,400MW power plants,' it noted.
CGS International (CGSI) Research said Malakoff would submit bids to extend the commercial life of expired and expiring gas power plants – GB3 (640MW), Prai Power (350MW), and Segari (1,303MW) – under the Energy Commission's recently launched tender, which closes in June.
'Management also clarified that this new tender will not impact the initial letter of notifications it has already received for two new gas-fired power plants, which are progressing toward formalisation. Construction of the group's 84MW small hydro project in Kelantan is progressing well,' CGSI Research stated.
It added Malakoff had completed the acquisition of a 49% stake in E-Idaman Sdn Bhd (which gives it exposure to waste management services in Perlis and Kedah) in February, and the company contributed some RM2mil to Malakoff's 1Q25 net profit figure.
CGSI Research has also maintained its 'add' call on Malakoff with a lower sum-of-parts based TP of RM1.15 a share on the belief the group's valuation remains undemanding supported by net yields of above 5.5%.
'Malaysia's energy transition drive also improve Malakoff's prospects for new plant awards, thus supporting long-term earnings,' the researc house said.
Rerating catalysts include the final investment decisions on projects in the pipeline, repowering of existing power assets and recovery in its dividend payout. Risks include return of negative fuel margins and unplanned plant outages.
Kenanga Research, meanwhile, cut its FY25 and FY26 earnings forecasts by 24% and 25% respectively, to reflect the provisioning impact.
It, however, kept its 'market perform' recommendation on the counter with a reduced TP of 77 ssen (from 80 sen) which is supported by a decent dividend yield of above 4%.
