Summary
MALAKOF’s 4QFY24 results came in below expectations due to negative fuel margins. Quarterly CNP came in at RM41.8m (-55.8% yoy), bringing the FY24 CNP to RM253.2m.
Earnings growth will be supported by (i) new gas plant PPAs; (ii) tariff adjustments for the concession solid waste management business; (iii) the completion of acquisition of E-Idaman, and (iv) the development of a new WTE plant.
After incorporating FY24 results, we adjust our FY25 and FY26 earnings forecasts by -0.6%/-0.5% respectively.
Reiterate our BUY recommendation with an unchanged TP of RM0.96 based on Sum-of-Parts (SOP) valuation, and appraised with a three-star ESG rating.
Missed Expectations. MALAKOF’s FY24 core net profit (CNP) of RM253.2m came in below expectations, achieving only 88% of ours and 89% of consensus full-year forecasts due to negative fuel margins. Dividend for 4QFY24 will be declared around March or April.
YoY. Excluding extraordinary items such as impairment loss on goodwill (RM10.2m), impairment loss in associates (RM12.5m) and reversal of coal provision to net realisable value based on the applicable coal prices (ACP) (RM7m), 4QFY24 CNP plunged 55.8% yoy to RM41.8m, impacted by negative fuel margins of c.RM18m, compared with a positive fuel margin of c.RM29m in the same quarter last year. Notably, the waste and environmental services segment continues to demonstrate stellar performance, with PAT growing 13.5% yoy, likely due to effective cost management following the launch of more efficient waste management fleet in October last year.
YTD. On a full-year basis, MALAKOF registered CNP of RM253.2m, marking a turnaround from a core net loss of RM438.4m in FY23. The recovery was driven by narrowing of negative fuel margins from c.RM829m in FY23 to negative fuel margins c.RM297m in FY24, as well as 11.1% yoy decline in finance cost as the Group gradually reduces its debt. Total debt has dropped significantly from RM9.6bn as of 4QFY23 to RM8.5bn as of 4QFY24.
QoQ. CNP dipped 51.9% qoq due to the recognition of a RM70m insurance claim for Tanjung Bin Energy Plant’s forced outage (low-pressure turbine failure) in 3QFY24.
Outlook. Looking ahead, we expect MALAKOF to continue facing pressure from negative fuel margins in 1QFY25 as coal prices have declined by c.20% from the end of December last year due to robust supply growth in China and seasonal decline in consumption post-winter peak seasons. Meanwhile, although Tanjung Bin Energy’s EAF has dropped to 59% due to unscheduled outages, the capacity income remained unaffected in 4QFY24. However, it remains uncertain whether the plant’s UOR will exceed the threshold, which could impact the capacity income. Despite the near-term challenges, medium-term earnings growth will be supported by (i) new gas plant PPAs due to the demand for newer, more efficient power plants to replace expiring assets; (ii) tariff adjustments for the concession solid waste management business; (iii) the completion of acquisition of E-Idaman, and (iv) the development of a new waste-to-energy (WTE) plant.
Earnings Revision. After incorporating FY24 results, we adjust our FY25 and FY26 earnings forecasts by -0.6%/-0.5% respectively. We also introduce FY27 earnings forecast of RM397.8m.
Valuation & Recommendation. We reiterate our BUY recommendation with an unchanged TP 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. With rising power demand in Malaysia, we believe MALAKOF is the frontrunner to secure new gas plant PPAs, given its position as the largest IPP in Malaysia.
Risks. Rapid plunge in coal prices, unplanned plant shutdowns, non-renewal of concession.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.390206 | 4.425718 |
EUR | 5.008717 | 5.015095 |
CNY | 0.603029 | 0.603828 |
HKD | 0.565660 | 0.569770 |
SGD | 3.345779 | 3.370205 |