Lower dividends could signal a shift for Malakoff

KUALA LUMPUR: Malakoff Corp Bhd’s lower dividend payout could signal a shift in focus amidst a changing landscape in the power industry.

Last month, Malakoff declared a final dividend of 2.3 sen, bringing its financial year 2020 (FY20) total dividend per share to 5.1 sen. This represents a payout of 87%.

According to analysts, this is the first time since its relisting that Malakoff had deviated from a 100% payout ratio.

The lower payout ratio could imply a slight shift in emphasis towards growth.

“We believe there is now a greater emphasis by new management on pursuing future growth, hence the desire to conserve cash. Growth areas identified include conventional power, renewables and waste management,” said Maybank IB Research in a report.

Malakoff currently has significant coal exposure. Revenue from its two coal plants – Tanjung Bin Power and Tanjung Bin Energy – accounts for over 60% of group revenue.

With 10 and 20 years to go respectively before the power purchase agreements expire, the research house noted that the “coal stigma” will continue to accompany Malakoff for the foreseeable future.

However, Malakoff has already begun its renewable diversification, having embarked on small projects in solar, mini-hydro and biogas. It is actively promoting rooftop solar generation, with Tan Sri Syed Mokhtar Albukhary companies – MMC Corp Bhd, DRBHICOM Bhd and Tradewinds Corp Bhd group of companies – being the initial targets.

Additionally, the acquisition of Alam Flora gave Malakoff an entry into waste management, which in turn offers a possible expansion into waste-to-energy.

Alam Flora has also introduced programmes to encourage households to separate recyclable wastes.

Nonetheless, Maybank IB pointed out that the lower payout by Malakoff still offered a relatively attractive dividend yield of more than 6%.

“We now assume an 85% payout ratio going forward from 100% previously, thus saving Malakoff about Rm50mil annually, which is within the company’s more than 70% payout policy.

“Consequently, our FY21/22/23 net profit forecasts are raised marginally by 0%/1%/2% respectively,” the research house said.

Maybank IB has a “hold” call on Malakoff with a target price of 85 sen based on a sumof-parts with each entity valued on a discounted cash flow assuming 7.5% weighted average cost of capital.