Malakoff Corporation Berhad - Strategic Streamlining of Non-core Assets
Tue, 04-Feb-2025 07:12 am
by Ong Tze Hern • Apex Research

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MALAKOF (5264)

Target Price (RM)

0.960

Recommendation

Buy

Summary

  • MALAKOF has proposed to dispose of its 100% equity interest in Malakoff Utilities Sdn Bhd to KJTS Group Bhd for a cash consideration of RM65.5m.

  • We are neutral on the disposal, as the disposal price is deemed fair (EV/EBITDA multiple of 7x, slightly above the peers’ average of 6.1x) and aligns with MALAKOF’s strategy to streamline its operations and focus on more profitable core businesses.

  • We maintain our earnings forecasts pending the completion of the disposal, which is subject to shareholder and regulatory approvals.

  • Maintain BUY recommendation with an unchanged target price of RM0.96 based on Sum-of-Parts (SOP) valuation and a three-star ESG rating.

 

Disposal of Non-core Business. Malakoff Corporation Bhd (MALAKOF) has proposed to dispose of its 100% equity interest in Malakoff Utilities Sdn Bhd (MUSB) to KJTS Group Bhd for a cash consideration of RM65.5m. 

 

Details of Disposal. MUSB is a key player in electricity distribution and district cooling infrastructure. MUSB holds the exclusive rights to distribute power in Kuala Lumpur Sentral, with a capacity of up to 153MW. Additionally, MUSB owns and operates a district cooling plant that supplies chilled water for air conditioning in KL Sentral. The disposal is expected to be completed by 2QCY25, with the proceeds earmarked for future investments and working capital purposes.

 

Our take. Overall, we are Neutral on the disposal. The disposal price is fair, reflecting an EV/EBITDA multiple of 7x based on the FY23 audited numbers, slightly above the peers’ average of 6.1x (excluding outliers). Furthermore, the sale price represents a RM10.8m premium over MUSB’s audited net asset of RM54.8m as of 31 Dec 2023. Strategically, the disposal allows MALAKOF to streamline its operations and focus on more profitable core business ventures. Financially, it is expected to marginally improve the net gearing ratio (inclusive of perpetual sukuk as debt) from 1.23x as of 3QFY24 to 1.22x post-transaction.

 

Earnings Revision. We maintain our earnings forecasts pending the completion of the disposal, which is subject to several approvals, including shareholder approval from KJTS Group and regulatory clearance. Based on unaudited 9MFY24 PAT of c.RM2.9m (c.1.5% of the Group’s 9MFY24 core profit), the disposal is expected to reduce FY25/FY26 earnings forecast by 1.2%/1.0% respectively. This estimate does not yet factor in the potential disposal gain of RM10.8m, assuming the sale price is based on MUSB’s audited net asset of RM54.8m as of 31 Dec 2023, nor the exact timing of completion in 2QCY25.

 

Valuation & Recommendation. We re-iterate our BUY recommendation with an unchanged target price of RM0.96 based on Sum-of-Parts (SOP) valuation. No ESG premium or discount has been applied, given the company’s three-star ESG rating.

 

Risks. Rapid plunge in coal prices, unplanned plant shutdowns, non-renewal of concession.

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