a significant chunk of the group’s earnings are recurring in nature with minimal counter party risk. This is because earnings from Malakoff’s power generation segment are governed under the Power Purchase Agreements (PPA).Malakoff (File pic: Malakoff's Tanjongbin coal fired power plant.) KUALA LUMPUR: Despite a lacklustre performance by Malakoff Corp Bhd for the financial year 2020 (FY20), analysts are still holding out on the company due to its stable earnings prospects. Kenanga Research described Malakoff’s Q4FY20 as disappointing with results missing forecasts and core profit tumbling 18% to RM41.6mil. The company’s total FY20 core profit came in at RM253.5mil, which was 26% and 25% below Kenanga’s and consensus estimates respectively. However, the research house noted that the poor showing was due to the continued unplanned outage at its subsidiary, Tanjung Bin Energy (TBE), and a 38% decline in associate income. But with the forced outage work at TBE already completed in Q4FY20, Kenanga is expecting more stable earnings in FY21. “With the elimination of its associate company Kapar Energy Ventures’ (KEV) losses coupled with new earnings from Alam Flora and additional stake in Shuaibah, its forward earnings and dividends are more sustainable. “Post results, we cut FY21 estimates earnings by 11% to reflect FY20 results plus a higher base of operation and maintenance costs for scheduled maintenance while introducing our FY22 new forecast with earnings growth of 3%, ” it said in its report yesterday. Kenanga has kept its “outperform” call on the stock for its stable earnings prospects since their new assets came online and it no longer has to equity-account for KEV. Additionally,Malakoff has an attractive yield of more than 6%. However, the research house has reduced its target price to RM1.05 from RM1.15 previously. Risk to its recommendation includes unplanned outages leading to lower-than-expected earnings. TA Securities has, likewise, kept its “buy” call on the company for its defensive quality with a slightly lower target price of RM1.04. “Given the uncertainty on the timing of a global economic recovery, Malakoff offers a safe haven for investors. “To recap, a significant chunk of the group’s earnings are recurring in nature with minimal counter party risk. This is because earnings from Malakoff’s power generation segment are governed under the Power Purchase Agreements (PPA). “As such, Malakoff receives fixed capacity payments as long as its plants are available for despatch within set parameters, ” said TA Securities. It also noted Alam Flora’s stable contribution to the group given that it earns fees from the government for garbage collection services. This is based on the type and volume of receptacles or premises served and service frequency levels. CGS-CIMB added that the acquisition of Alam Flora has also created synergistic opportunities to develop waste-to-energy (WTE) projects. The group is also exploring new avenues to grow the business, such as looking at hazardous waste management facilities and handling port waste.Malakoff is also exploring renewable energy (RE) projects domestically, in line with the government’s aim to increase the proportion of RE to 20% of Malaysia’s energy generation mix by 2025. “The group has set an RE target of 1,000MW for the medium term. We gather the group will be participating in Johor’s WTE plant bid. Currently, the group has 29MW of RE capacity, ” CGS-CIMB said. The research firm reiterated its “add” call on Malakoff with a target price of RM1.06, up 1 sen from its previous target price, on its improving earnings profile due to additional profit contribution from Alam Flora and lower finance cost, a less stretched balance sheet and its dividend yield of 6%-7% for FY21-23.
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