Malakoff Corporation Berhad - Major Sarawak Solar Win, But Capacity Income Risk from TBE Fire
Mon, 06-Oct-2025 09:10 am
by Ong Tze Hern • Apex Research

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MALAKOF (5264)

Target Price (RM)

0.97

Recommendation

Hold

  • MALAKOF, via a 70:30 JV, has signed a 30-year PPA with SESCO to design, construct, own, operate, and maintain a 100MWac solar photovoltaic plant in Bintulu, Sarawak, with COD targeted for 1 May 2028.

  • We view this development positively, as it represents MALAKOF’s first large-scale solar venture in East Malaysia, broadening its renewable portfolio and providing a new stream of recurring income.

  • Separately, a fire at the TBE damaged 70% of the flue gas desulfurisation (FGD) system and chimney tunnel. Should the outage extend beyond the scheduled mid-Oct completion, capacity income could be at risk, with a potential PATAMI impact of c.RM1.3m/day.

  • No changes to earnings forecasts for now, as contributions from the Sarawak solar project are expected to begin only from FY28F, which lies beyond our forecast horizon, while the financial implications of the TBE outage remain under assessment.

  • Following the recent share price rally, we downgrade MALAKOF to HOLD (from BUY), albeit with a higher TP of RM0.97 (from RM0.96), after incorporating its 70% stake in the 100MWac Bintulu solar project into our SOP valuation.

 

30-year PPA with SESCO. On 3 October 2025, MALAKOF, via its 70%-owned subsidiary Malakoff Evergreen Sdn Bhd (MEVSB), signed a 30-year Power Purchase Agreement (PPA) with Syarikat SESCO Berhad (SESCO) to design, construct, own, operate, and maintain a 100MWac solar photovoltaic plant in Bintulu, Sarawak. MEVSB is a JV between MALAKOF’s wholly-owned Tuah Utama Sdn Bhd (70%) and EE Solar Sdn Bhd (30%). While EE Solar’s ownership has not been disclosed, we believe it represents MALAKOF’s local Sarawak partner. Meanwhile, SESCO is the state-owned electricity utility and primary power off-taker in Sarawak, responsible for electricity generation, transmission, and distribution under Sarawak Energy Berhad. The PPA covers the sale and purchase of the net electrical output generated by the facility up to 242,160MWh annually, a level unlikely to be exceeded given it assumes average daily solar irradiation of 6.6 hours, above Malaysia’s typical 4–6 hours. COD is targeted for 1 May 2028.

 

Our Take. We view this development positively, as it marks MALAKOF’s first large-scale solar project in East Malaysia, expanding its renewable footprint beyond Peninsular Malaysia. Benchmarking against SLVEST’s (BUY, TP: RM3.41) 100MWac Mukah project (estimated capex: RM380m), we assume a similar investment cost, reflecting higher logistics and infrastructure costs in Sarawak relative to peninsular Malaysia. While Sarawak’s predominantly hydro-based generation system entails low marginal generation costs, which may limit the PPA tariff upside, project returns remain acceptable given SESCO’s strong offtaker profile, supporting lower financing costs, and longer 30-year PPA tenure (vs. 21 years under LSS schemes), enhancing bankability and IRR stability. Assuming an 80:20 debt-to-equity structure and tariff of c.16 sen/kWh (in line with LSS5 benchmarks), we estimate an IRR of 6–8%. We expect earnings contribution of RM2–3m in PATMI annually from FY29F. Given MALAKOF’s prior collaboration with SLVEST under the LSS5+ framework and SLVEST cost advantage through economies of scale, we believe SLVEST is the most likely EPCC contractor for this project.

 

Fire at Tanjung Bin Energy. Separately, on 2 October 2025, a fire occurred at Tanjung Bin Energy (TBE) power plant in Johor, damaging approximately 70% of the flue gas desulfurisation (FGD) system and chimney tunnel. No casualties or injuries were reported. The affected unit remains shut pending inspection, repairs, and regulatory clearance.

 

Capacity Income Risk if Outage Prolongs beyond Mid-October. FGD systems are crucial for SO₂ emission control to ensure compliance with environmental standards. MALAKOF clarified that the unit was already under a scheduled outage, hence no immediate impact from forced shutdown is expected. However, if the outage extends beyond mid-October, capacity income could be at risk. While the unit could theoretically operate without the FGD by bypassing it, this would likely breach emission limits and is not a viable option without regulatory exemption. For context, TBE contributed RM642m in capacity income in FY24 (c.7% of Group revenue). A full outage could imply a PATAMI impact of c.RM1.3m/day.

 

Earnings Revision. No changes to our earnings forecasts, as contributions from the Sarawak solar project are expected to commence only from FY28F, which lies beyond our forecast horizon, while further clarity on the TBE outage impact remains pending.

 

Valuation & Recommendation. Following the recent share price rally, we downgrade MALAKOF to HOLD (from BUY), albeit with a higher TP of RM0.97 (from RM0.96), after incorporating its 70% stake in the 100MWac Bintulu solar project into our SOP valuation, alongside a three-star ESG rating. With rising domestic power demand, we believe MALAKOF is the frontrunner to secure new gas-fired plant PPAs under the Energy Commission’s recent RFP for up to 8GW capacity, given its position as Malaysia’s largest IPP and strong operational track record in managing gas-fired plants across Peninsular Malaysia.

 

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

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