MALAKOF slipped into a core net loss of RM38.6m in 3QFY25, bringing 9MFY25 core net profit to RM40.1m (-81.7% YoY). The results were significantly below expectations, meeting only 20% of our full-year forecast and 17% of consensus. The earnings miss was due to capacity income loss at TBE following the steam turbine crossover pipe leakage and a substantial drop in associate/JV contributions after the decommissioning of the Shuaibah plant.
Management estimates a RM100m capacity income loss at TBE from the FGD fire, while the RM25–30m restoration cost will be capitalised.
We revise our earnings forecasts for FY25F/FY26F/FY27F by -115.5%/-19.9%/-15.3% respectively to reflect the capacity payment loss at TBE, the structurally lower contribution from Shuaibah, and the absence of a further PPA extension at Prai. We also lower our DPS projections from 4.5/5.0/6.0 sen to 2.0/2.5/3.5 sen, incorporating weaker earnings and increased capex requirements associated with the development of new assets.
Following the removal of Prai from our valuation and applying 12x FY26F earnings to associates and JVs (previously based on book value), our revised SOP-derived target price stands at RM0.78 (from RM0.96). Downgrade to SELL (from HOLD).
Missed Expectations. Excluding EI such as perpetual sukuk distribution (-RM27.8m) excluded from P&L statement and reversal of coal provision to NRV based on the ACP (-RM39.0m), MALAKOF slipped into a core net loss (CNL) of RM38.6m in 3QFY25, bringing 9MFY25 core net profit (CNP) to RM40.1m (-81.7% YoY). The results were significantly below expectations, meeting only 20% of our full-year forecast and 17% of consensus. The underperformance was driven mainly by capacity income loss at TBE following the steam turbine crossover pipe leakage and a substantial drop in associate/JV contributions after the decommissioning of the Shuaibah Water & Electricity Company (SWEC) plant.
YoY. 3QFY25 posted a CNL of RM38.6m versus a CNP of RM86.9m in 3QFY24. The decline was driven primarily by RM30m in lost capacity income arising from TBE’s unscheduled outage and a 61.4% drop in associate/JV contributions following the decommissioning of SWEC’s plant in May 2025. This was recorded despite a narrower negative fuel margin (-RM18m vs -RM70m a year earlier). TBE was offline from 8 Sep to 16 Oct due to steam turbine crossover pipe leakage, during which its unplanned outage rate (UOR) exceeded the 6% threshold on 16 Sep and subsequently rose to 12%, breaching both PPA thresholds. Meanwhile, Shuaibah’s profit contribution fell 79%, consistent with its reduced operating profile post-decommissioning.
QoQ. MALAKOF swung from a CNP of RM26.7m in 2QFY25 to a CNL of RM38.6m in 3QFY25. The sequential deterioration resulted from the capacity income shortfall at TBE, the weaker contribution from Shuaibah, and the recognition of RM27.8m in perpetual sukuk distributions that were not present in the preceding quarter. This was partially offset by a smaller negative fuel margin (-RM18m vs -RM45m in 2QFY25).
YTD. 9MFY25 core net profit contracted 81.7%, pressured by the 3Q outage at TBE and the sharp reduction in Shuaibah’s profit contribution. The results were further weighed down by lower earnings from Prai Power Plant following the expiry of its extended PPA in August 2025 without renewal. Incremental contribution from the 49% stake in E-Idaman, acquired in February 2025, only partially mitigated the shortfall.
Key Takeaways from Briefing:
Capacity Income Loss at TBE Estimated at RM100m. Following the crossover pipe leakage incident, TBE suffered a second unscheduled outage due to a fire in the flue gas desulphurisation (FGD) system on 2 Oct. Management estimates a RM100m capacity income loss, while the RM25–30m restoration cost will be capitalised. Insurance coverage includes RM2m of repair cost deductibles, while business interruption is claimable after the 45-day deductible, implying coverage beginning 17 Nov. Assuming full eligibility of lost capacity income, the insurance claim could amount to c.RM60m, based on our estimates. Management expects the FGD bypass path to be fully restored by end-December 2025, and notes that the availability target block and UOR will reset on 1 Jan 2026, supported by 164-day outage allowance for each five-year block.
Sustained Reduction in Shuaibah Contribution. Shuaibah delivered RM5m in 3QFY25 (3QFY24: RM24m; 2QFY25: RM18m). Management indicated that the contribution is likely to remain near RM5m per quarter until the expiry of the PWPA in 2030. This implies an annual reduction of approximately RM50m in associate/JV income relative to historical levels.
Pending Review of Alam Flora Concession Tariff. MALAKOF has submitted a request for tariff adjustment for the solid waste management concession. A decision is expected between Sep 2025 and Sep 2026. The current concession fee of RM8 per household per month, set in 2011, remained unchanged following the 2018 tariff review.
Outlook. We expect MALAKOF to report a wider core loss in 4QFY25 due to the direct bottom-line impact of the RM100m capacity income loss at TBE. Earnings will also be constrained by the lapse of Prai Power Plant’s PPA extension in Aug 2025, which was not renewed. Medium-term earnings recovery will hinge on further PPA extensions and the anticipated tariff adjustments for the solid waste management concession, likely in 2026. Material earnings uplift from new assets, including WTE and solar projects, will only commence from 2028 onwards upon COD.
Earnings Revision. We revise our earnings forecasts to reflect the capacity payment loss at TBE, the structurally lower contribution from Shuaibah, and the absence of a further PPA extension at Prai. Our updated estimates reduce FY25F/FY26F/FY27F core net profit by -115.5%/-19.9%/-15.3% respectively. We also lower our DPS projections from 4.5/5.0/6.0 sen to 2.0/2.5/3.5 sen, incorporating weaker earnings and increased capex requirements associated with the development of new assets.
Valuation & Recommendation. Following the removal of Prai from our valuation and applying 12x FY26F earnings to associates and JVs (previously based on book value), our revised SOP-derived target price stands at RM0.78 (from RM0.96). We downgrade MALAKOF to SELL (from HOLD). No ESG premium or discount applied given its three-star rating. While MALAKOF remains well-positioned to secure future gas-plant PPAs due to its scale, we expect near- to medium-term earnings to remain under pressure, with meaningful improvement only after 2028 once new assets begin contributing.
Risks. Rapid plunge in coal prices, unplanned plant shutdowns, non-renewal of concession.
Disclaimer
The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.
Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.116196 | 4.147085 |
| EUR | 4.779011 | 4.786244 |
| CNY | 0.583313 | 0.583620 |
| HKD | 0.529202 | 0.533225 |
| SGD | 3.170028 | 3.194008 |