Analysts positive on sustained earnings growth for Malakoff

by NUR HANANI AZMAN/ pic by MUHD AMIN NAHARUL

MALAKOFF Corp Bhd’s earnings growth in the first quarter (1Q) driven by improved operations has analysts anticipating that the independent power producer could maintain its performance going forward.

The company has been upgraded to a ‘Buy’ from ‘Hold’ by Affin Hwang Investment Bank Bhd after surprising on the upside with a 33% jump in 1Q earnings.

The investment bank raised its earnings per share forecast by 4% to 6% for Malakoff’s financial years ending Dec 31, 2020 (FY20), to FY22, while keeping a target price (TP) of 95 sen on the group.

The water and power producer’s net profit surged 33.1% to RM89.18 million in the 1Q ended March 31, 2020 (1Q20), from RM67 million a year ago, attributed to contribution from Alam Flora Sdn Bhd, the acquisition which was completed on Dec 5, 2019.

“The better than expected performance for the quarter was due to higher contribution from its associates and lower operations and maintenance costs,” Affin Hwang wrote in a note yesterday.

The higher contribution from associates in 1Q20 was due to the absence of the share of losses from Kapar Energy Ventures Sdn Bhd (fully written off in 4Q19) and the completion of 12% additional interest in Shuaibah Independent Water and Power Project in September 2019.

“We believe the recovery is more likely to be sustained, and are adjusting up our earnings to factor in the changes,” Affin Hwang stated.

Kenanga Investment Bank Bhd also upgraded its call on Malakoff to ‘Outperform’ with a higher TP of RM1.02, and raised its FY20 core net profit forecast by 31%.

It said the economic slowdown led by the Movement Control Order (MCO) should have an immaterial impact on the group as it’s an essential services provider.

RHB Investment Bank Bhd kept its ‘Buy’ recommendation on Malakoff albeit with a higher TP of RM1.09, with expectations for the group to grow FY20 to FY22 earnings by 3% to 14%. This would be driven by improved plant reliability and stable contributions from Alam Flora.

Malakoff in a Bursa Malaysia filing on Wednesday said it recorded RM1.77 billion in revenue for 1Q20, down 11.6% from RM2.01 billion the year before.

This was primarily due to lower energy payment given the decline in applicable coal price at Tanjung Bin Power Sdn Bhd and Tanjung Bin Energy Sdn Bhd, and weaker despatch factor at Segari Energy Ventures Sdn Bhd and Prai Power Sdn Bhd gas plants following scheduled outage maintenance works.

Malakoff said its power plants and waste collection services continue to operate as usual. “However, the MCO-induced reduction in demand for electricity affected the dispatch of electricity during the period. This resulted in lower revenue from energy payment, but capacity payment remained intact for the power plants.

“The group will continue to adapt to the new normal arising from the pandemic, while continuing to execute its strategic initiatives to achieve operational excellence and sustainable growth, as well as strengthen its fundamentals,” it said.

It will also continue to seek opportunities to expand its renewable energy capacity.

Development activities for the recently awarded 2.4MW biogas plant in Kota Tinggi, Johor, and the 55MW small hydro projects are progressing according to approved timelines.

“Based on the foregoing, the group expects performance to remain satisfactory for FY20,” the firm stated.