Malakoff Corporation - A slow start

Author: kltrader   |   Publish date: Tue, 24 May 2016, 10:45 AM 

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Temporary cost spikes

1Q16 results were below expectations primarily on cost escalations mainly relating to maintenance. Nevertheless, with maintenance activities tapering off, and PD Power’s extended PPA kicking in, Malakoff’s earnings outlook should improve in the coming quarters. BUY rating retained with an unchanged TP of MYR1.80.

Below expectations

Malakoff’s 1Q16 net profit of MYR84m (-19% YoY, -21% QoQ) represents just 15% of ours/consensus full-year forecasts respectively. The miss was mainly due to cost escalations in the quarter arising from 1) higher maintenance activities mainly at Tanjung Bin Power and 2) provision for liquidated damages arising from the slight delay in Tanjung Bin Energy’s commissioning. No dividend was declared this quarter.

Leadership in place

Malakoff has recently appointed Datuk Wira Azhar Abdul Hamid (previous CEO of MRT Corp and MD of Sime Darby Plantations) as its new Group Managing Director. With the top position now filled, the lack of progress on new projects and acquisitions could potentially be reversed in the near future, in our view. Management did not divulge much on this front in the results call.

Earnings unchanged for now

With management guiding for reduced maintenance activities in subsequent quarters, we keep our earnings forecasts unchanged for now. Our TP of MYR1.80 is based on a sum-of parts methodology, with each entity valued on a DCF. Despite the potential net profit step-down in 2017 (mainly due to Segari’s revised PPA terms), we expect Malakoff to sustain annual DPS at above 7sen.
Source: Maybank Research - 24 May 2016