Malakoff gets FY20-FY22 earnings forecast upgrade after stellar 2Q20

Further growth can be achieved if Malakoff is able to secure international greenfield or brownfield power generation

by ASILA JALIL/ pic credit:

MALAKOFF Corp Bhd’s stellar performance for the second-quarter of 2020 (2Q20) has led to analysts raising their earnings forecasts for the group in its financial years ending Dec 31, 2020 (FY20), up to FY22.

RHB Investment Bank Bhd (RHB Research) increased its estimates for Malakoff’s FY20 to FY22 earnings by 11% to 13%, after imputing higher contributions from its joint-venture (JV) and associates.

It also raised the target price (TP) on the group to RM1.12 from RM1.09 previously, while maintaining a ‘Buy’ call on the independent water and power producer.

“Further growth can be achieved if Malakoff is able to secure international greenfield or brownfield power generation or water projects via its collaboration with J-Power, one of Japan’s largest power firms,” RHB Research wrote in a recent note.

Public Investment Bank Bhd also has a ‘Buy’ call on the group, with an unchanged TP of RM1.06.

“We raise our forecasts by an average of 9% for FY20 to FY22, to account for higher associates’ contribution,” it said in a note.

Malakoff’s 2Q20 earnings beat expectations, doubling to RM104.96 million from RM52.25 million last year on contributions from Alam Flora Sdn Bhd and its energy division, as well as investments in associates after acquiring 12% additional interest in the Shuaibah independent water and power plant project.

Quarterly revenue fell 16.6% to RM1.51 billion from RM1.81 billion last year due to lower energy payments recorded from Tanjung Bin Power Sdn Bhd and Segari Energy Ventures Sdn Bhd due to lower applicable coal price, despatch factor and daily utilisation payment for Tanjung Bin Power in line with scheduled tariff reduction.

“Post adjustments, we still expect earnings to grow 7% to 50% in FY20 to FY21, underpinned by better plant reliability and stable contributions from Alam Flora while paving the way for renewable energy ventures in the longer run,” RHB Research added.

It also said Tanjung Bin Power and Tanjung Bin Energy have demonstrated stable plant reliability in 2Q20 but may incur higher operations and maintenance costs in the second half of 2020.

“We continue to see higher year-on-year growth from Malakoff’s JV and associates contributions, led by absence of Kapar Energy Ventures Sdn Bhd losses, higher profit share from the Shuaibah companies (subsequent to the doubling of equity stakes in September 2019), and Hidd Power Co in Bahrain as a result of lower plant outages.

“Management is looking to achieve financial closure for its 65%-owned 55MW mini hydro projects by November, with commercial operation date slated for December 2024,” it said.

The group is also likely to participate in the tender for the government’s fourth stage large-scale solar project, for which the bidding deadline is Sept 2, 2020.