Malakoff finally a bargain in Kenanga Research’s eyes
KUCHING: After facing severe selling pressure from the past year, Malakoff Corporation Bhd’s (Malakoff) stock has finally become a bargain in the eyes of analyst Kenanga Investment Bank Bhd (Kenanga Research).
In a recent note, the research arm believed that Malakoff’s selling was overdone as its shares – which had fallen 26 per cent year-to-date (YTD) – were now trading at 37 per cent discount to its sum-ofparts (SOP) valuation of RM1.61 per share.
“A such, we upgraded the stock back to ‘outperform’ from ‘market perform’ with an unchanged target price (TP) of RM1.30 per share which is at a 20 per cent discount to its SoP valuation,” said the research arm.
The main risks to this call include a bigger-than-expected cut in the group’s associate – Segari Energy Ventures Sdn Bhd’s (SEV) capacity payment, unplanned outages and higher operations and maintenance costs.
Looking at the remainder of the results note, the research arm highlighted that sequential results of the group’s Kapar Energy Ventures Sdn Bhd (KEV) had remained weak as its second quarter of financial year 2017 (2QFY17) core profit fell by 16 per cent quarter over quarter (q-o-q) to RM83.3 million from RM98.8 million.
The decline was largely due to the lower capacity payment by RM48.8 million for Tanjung Bin Energy due to unplanned outages experienced in May and lower fuel margins.
Despite the fall however, overall results were still within expectations as the group’s first half of FY17 (1HFY17) core profit of RM182.1 million met 54 and 53 per cent of the research arm’s and consensus full-year estimates respectively.
In addition, rhe research arm also noted that the gorup’s associate incomes were demonstrating better year over year (y-o-y) numbers as their 2QFY17 and 1HFY17 core earnings rose 10 and 14 per cent to RM83.8 and RM159.7 million, respectively.
Going forward however, the group’s outlook still remains murky in the near-term as on-going scheduled maintenance in 2HFY17 coupled with expected lower capacity payment arising from the PPA extension contract for SEV, will likely cause earnings to be weaker than 1H17.
With that said, the research arm has decided to retain their estimates for now as they have already assumed a 50 per cent cut in capacity payment at SEV.
“And although 1H17 net dividend per share is lower than its targeted earnings pay-out of 70 per cent, we also keep our assumption unchanged as we already assumed a 70 per cent pay-out,” they added.