Dispute settlement adds spark to Malakoff

> Though Tanjung Bin’s deal is a one-off gain, it will cushion earnings pressure from unexpected lower capacity payment: PublicInvest

PETALING JAYA: PublicInvest Research is positive on Malakoff Corp Bhd’s move to resolve and settle the disputes at the Tanjung Bin power plant.

“Although this will be a one-off gain in FY17F, we see this piece of news as positive to Malakoff as this will cushion the earnings pressure from the unexpected lower capacity payment from Tanjung Bin Energy in Q2’17, as well as lower contribution from Segari Energy Ventures in 2H17 onwards,” it said in a report yesterday.

It maintained its “neutral” call on the stock with an unchanged target price of RM1.29. It also maintained its forecasts pending further details on the agreement.

“While the potential upside to our target price is still attractive, we believe near-term sentiment may remain weak due to lower-than-expected earnings in forthcoming Q2 results owing to recent operational challenges,” it said.

To recap, Malakoff’s 90%-owned unit Tanjung Bin Power Sdn Bhd (TBP) was seeking damages claims from a few parties through litigation action in December 2015 and arbitration proceedings in November 2016.

The total claimed amount was estimated at RM785 million as at November 2016. This was due to 22 different boiler tube failure incidents at TBP power plant and the inability of the power plant to meet certain required output conditions.

Last Friday, Malakoff announced that TBP had entered into an agreement with IHI Corp Japan (IHI), ISHI Power Sdn Bhd (ISHI) and IHI Power Systems (M) Sdn Bhd (IPSM), as well as Sumitomo Corp, Zelan Holdings (M) Sdn Bhd and Sumi-Power Malaysia Sdn Bhd.

The agreement was to resolve and settle the disputes relating to previous operational issues at the power plant, according to terms and conditions of the agreement.

Under the agreement, TBP will enter into a consent judgment in the litigation action on a strictly without admission of liability basis, and withdraw and discontinue the arbitration proceedings.

IHI is the manufacturer and supplier of equipment, parts and components for boilers and boiler system at the plant while ISHI and IPSM provide services for the boilers and mills at the plant.

Sumitomo, Zelan and Sumi-Power are the engineering, procurement, construction and commissioning contractors of the power plant.

“Although it did not disclose the terms and conditions, and the amount to be settled, we are positive on this new development as it should help to improve FY17F earnings,” it said.

Malakoff shares rose two sen to close at RM1.04 yesterday on some 30.57 million shares traded, giving it a market capitalisation of RM5.2 billion.