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Thursday, May 21, 2020

Malakoff Corporation Berhad - Higher Associates’ & JV Contribution

Malakoff reported a 33% increase in 1Q20 net profit to RM89.2m. The results were above our and consensus’ estimates, accounting for 32% of full year estimates respectively. The higher net profit was mainly due to the newly acquired Alam Flora and better-than-expected contribution from associates and joint venture following the acquisition of additional stake of 12% in Shuaibah and the absence of share of losses from Kapar Energy Ventures (KEV). There was no dividend declared for the period under review. We maintain our forecast for now, pending its analyst briefing. We retain our Trading Buy call on Malakoff with target price of RM1.06.
  • Lower energy payment amid lower applicable coal price and scheduled maintenance outage, but moderated by Alam Flora. The revenue for 1Q20 declined 11% YoY to RM1.77bn mainly due to lower energy payment (-27%) given the declined in applicable coal price (ACP) from Tanjung Bin Power (TBP) (-21%) and Tanjung Bin Energy (TBE) (- 37%). Meanwhile, Segari Energy Ventures (SEV) (-23%) and Prai Power reported lower dispatch factor as plant was on scheduled maintenance outage during the period. This however was partly cushioned by revenue contribution from newly acquired subsidiary, Alam Flora following completion of the acquisition in December 2019.
  • Higher net profit from better associates’ and JV contribution. The Group reported lower operating profit of RM240.7m (-5% YoY) in 1Q20 mainly due to lower fuel margin recorded at TBE impacted by the decline in ACP, lower daily utilisation payment at TBP and the absence of contribution from Macarthur Wind Farm (MWF) following the disposal of the Group’s investment on 18 December 2019. Overall, its YoY net profit increased by 33% to RM89.2m due to contribution from Alam Flora, lower operations & maintenance costs (-30%) and better associates’ and JV contribution (+147%).
  • Associates & JV. Income from the associates & JV jump 147% YoY to RM40.8m in 1Q20, compared to RM16.5m in 1Q19. This was due to the completion of 12% additional stake in Shuaibah in September 2019 and the absence of share of losses from 40%-owned KEV as a result of provisions made up to the carrying amount of investment in KEV as at 31 December 2019.
  • Impact to MCO. The Movement Control Order (MCO) which began on 18 March 2020 has induced reduction in demand for electricity and affected the dispatch of electricity during the period where all Malakoff’s gas plant were put on standby. This had resulted in lower revenue from energy payment (i.e. cost-pass-through) but capacity payment remained intact for the power plants, hence we expect minimal impact to bottom line.
Source: PublicInvest Research - 21 May 2020

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