RHB sees exciting growth for Malakoff
KUALA LUMPUR: RHB Research Institute is keeping its “buy” call on independent power producer (IPP) Malakoff with a new discounted cashflow target price of RM1.09 compared with RM1.05 earlier.
The research house said yesterday Malakoff has exciting earnings growth and an estimated yield of about 6% for financial year 2020.
“Malakoff’s 1Q20 results beat expectations due to stronger JV & associate contribution. Post adjustments, we still expect earnings to grow 11%-33% in FY20F-21F, underpinned by better plant reliability and stable contributions from Alam Flora while paving the way for renewable energy ventures in the longer run,” it said.
RHB Research said at 38% and 35% of its and consensus full year estimates, 1Q20 core earnings of Rm97mil (2.3 times q-o-q), 45% (y-o-y) came above expectations on stronger-than-expected JV & associates contributions.
It said the 1Q20 core earnings improved by 2.3 times to Rm97mil thanks to higher contributions from the Tanjung Bin Energy plant (TBE) and Tanjung Bin Power Plant (TBP), and absence of share of losses from Kapar Energy Ventures (KEV) which has been fully provided in 4Q19.
“Year on year, core profit also improved by 45% y-o-y on higher JV & associates contribution (Shuaibah, Hidd Power Co, and absence of KEV losses) and full quarter contribution from Alam Flora.
“This is offset by absence of Macarthur Wind Farm contribution following its disposal at the end of last year,” it said.
On the outlook, RHB Research said all of Malakoff’s plants are still in operation during the movement control order (MCO) period.
With that, the bulk of the capacity payments remain intact. Lower energy payments are expected on the lower capacity factor, but the earnings impact is rather minimal, as it is meant to cover variable operating costs and fuel costs.
Apart from the solid waste management activities, Malakoff’s subsidiary Alam Flora has been actively involved in sanitisation and disinfection services around Kuala Lumpur, Putrajaya and Pahang as part of the government’s efforts to contain the spread of COVID19.
However, we believe the earnings impact is rather minimal.
“Meanwhile, management is looking to finalise the power purchase agreements (PPA) and achieve financial closure for its 65%owned 55MW mini hydro projects by this year. “We increase FY20F-22F earnings by 3-14% after imputing higher contribution from its JV & associates. Post earnings adjustment, our DCF derived TP is adjusted to RM1.09 from RM1.05.
“Further growth can be achieved if Malakoff is able to secure any international greenfield or brownfield power generation or water projects via its collaboration with Jpower, one of the largest power companies in Japan. Key risks to our calls - unscheduled outages, disruption in fuel supply and higher-than-expected operating costs, ” it said