Malakoff Corp’s quarter one 2023 results missed expectations due to its negative fuel margin. With core prices set to normalise in the upcoming quarters, the fuel margin impact may still affect its bottom line, albeit to a moderate extent, said RHB Research (RHB) in the recent Malaysia Results Review Report.
“Our BUY call is largely premised on the company’s decent dividend yields and resilient future earnings, anchored by the Alam Flora contribution as well as a better plant stability,” said RHB.
Quarter one 2023 core net losses of RM71 million came in below expectations, due to a substantial negative fuel margin. This, in turn, was the result of the volatility in applicable coal prices.
Revenue increased by 21% year-on-year in quarter one 2023 on the back of higher energy payments from the Tanjung Bin Power (TBP) and Tanjung Bin Energy (TBE) plants.
That said, Malakoff recorded a core loss of RM71 million, no thanks to a negative fuel margin impact, lower joint venture & associate contributions and higher operating insurance costs.
This, however, was partially cushioned by lower finance costs and depreciation charges. The weaker quarter-on-quarter performance was also due to a negative fuel margin impact and lower joint venture & associate contributions.
As coal prices are expected to moderate going forward, we may continue to see fuel margin fluctuations affecting Malakoff’s bottomline this year. In March, the company entered into a heads of agreement with domestic private companies to develop, own, operate, and maintain three hydroelectric renewable energy plants in Kelantan.
RHB is generally positive on the venture as, with this, its net renewable portfolio rises to 100 megawatt. Note that this achievement still lags behind its targets of 1000 megawatt (for 2026) and 1,400 megawatt (for 2031). In the meantime, Alam Flora’s performance should continue to underpin Malakoff’s earnings.
“We cut financial year 2023-2025 future earnings by 6-39% to account for negative fuel margins. Our discounted cash flow-based trading price drops to RM0.77, after we rolled forward our valuation base year and applied a 10% discount, based on our revised ESG score of 2.5 for the stock, as per our proprietary in-house methodology,” said RHB.
Downside risks identified by RHB are the higher-than-expected plant outages and operating expenses.
