Malakoff Corporation Berhad - Earnings Miss; Downgrade to HOLD
Fri, 29-Aug-2025 07:06 am
by Ong Tze Hern • Apex Research

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MALAKOF (5264)

Target Price (RM)

0.91

Recommendation

Hold

  • MALAKOF’s 2QFY25 CNP came in at RM26.7m (-48.6% QoQ, -59.2% YoY), bringing 6MFY25 CNP to RM78.7m (-40.5% YoY). The results fell short of expectations, accounting for 29% of our full-year forecast and 30% of consensus estimates. The earnings miss was due to negative fuel margins of c.RM45m recognised in the quarter following the continued decline of coal prices at the start of the year.

  • Medium-term earnings growth will be supported by extension of existing PPAs, and tariff adjustments for the concession solid waste management business.

  • Factoring in the negative fuel margins, we trim our FY25/FY26/FY27 earnings forecasts by 24.2%/17.3%/9.6% respectively.

  • After incorporating E-Idaman and the Sungai Udang WTE plant into our valuation, we derive a higher SOP-based TP of RM0.91 (from RM0.88). However, given the recent share price run-up, we downgrade MALAKOF to HOLD (from BUY).

     

  • Missed Expectations. Excluding extraordinary items such as reversal of coal provision to NRV based on the ACP (-RM40.0m), PPE written off (+RM3.4m), and other adjustments (+RM0.5m), MALAKOF’s 2QFY25 core net profit (CNP) came in at RM26.7m, bringing 6MFY25 CNP to RM78.7m. The results fell short of expectations, accounting for 29% of our full-year forecast and 30% of consensus estimates. The earnings miss was due to negative fuel margins of c.RM45m recognised in the quarter following the continued decline of coal prices at the start of the year.

     

  • Dividends. The Group declared an interim dividend of 1.5 sen (2QFY24: 2.2 sen).

     

  • YoY. 2QFY25 CNP plunged 59.2%, impacted by higher negative fuel margins (c.-RM45m vs. c.+RM3m in 2QFY24). On a positive note, the Waste & Environment segment continued to deliver strong growth, with PAT growing 10.0% YoY, underpinned by contribution from the 49% E-Idaman stake (acquired on 28 Feb 2025).

     

  • QoQ. CNP declined 48.6% despite the absence of RM27.4m perpetual sukuk payment in 1QFY25. The weaker earnings reflected the recognition of c.RM45m negative fuel margins (vs. nil in 1QFY25).

     

  • Outlook. We expect MALAKOF’s fuel margin drag to ease in 3QFY25, as coal prices have stabilised since April 2025. The Group has submitted PPP (350MW), Segari (1.3GW) and GB3 (640MW) for extension of PPA until Dec 2029, with decision expected as early as Sep 2025. Medium-term earnings growth will be supported by (i) Extension of existing PPAs, and (ii) tariff adjustments for the solid waste management concession, expected in 2026.

     

  • Earnings Revision. Factoring in the negative fuel margins, we trim our FY25/FY26/FY27 earnings forecasts by 24.2%/17.3%/9.6% respectively.

     

  • Valuation & Recommendation. After incorporating E-Idaman and the Sungai Udang WTE plant into our valuation, we derive a higher SOP-based TP of RM0.91 (from RM0.88). However, given the recent share price run-up, we downgrade MALAKOF to HOLD (from BUY). No ESG premium/discount is applied, reflecting its three-star ESG rating. While we continue to view MALAKOF as the frontrunner for new gas plant PPAs given its scale as Malaysia’s largest IPP, we believe valuations are now fair.

     

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

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