Maybank Maintains Sell Call On Malakoff Despite Recent Rally

Maybank IB said it believes Malakoff’s YTD share price rally is unjustified. While Malakoff has returned to the black (normalisation of fuel margins), there are near/medium-term challenges with regards to concession expiries. Despite Malakoff’s Johor presence, the existing plants do not tangibly benefit from the data centre-led demand boost. The house maintains a sell call with an unchanged SOP-based TP of MYR0.55.

Johor (DC) exposure overhyped
Malakoff is one of the biggest power producers in Johor, cumulatively operating 3,100MW of generation capacity in Southern Johor via coal-fired Tj Bin Power (TBP) and Tj Bin Energy (TBE). In Malaysia’s PPA model for thermal plants, IPPs receive capacity payments based on availability, and conceptually do not benefit from increased generation. Thus, the data
centre-led demand boost is not going to lead to higher earnings for TBP and TBE, in its view.

Working on concession extensions
The Prai Power concession expires in Jun 2024, while the TBP concession (Malakoff’s largest earnings contributor) expires in Sep 2031. Malakoff is currently working on securing an extension for Prai Power (likely at lower tariffs since capital cost has already been recovered). For TBP, funding new projects sizable enough to replace the resulting earnings gap (tariffs
are again likely to be lowered even if extended) could be a challenge.

Malakoff is currently working on co-firing TBP with biomass (NETR initiative). Separately, Alam Flora’s concession expires in Aug 2032.

Maintain SELL
Maybank keeps the earnings forecasts and MYR0.55 TP (based on a sum-of-parts with each entity valued on a DCF assuming 8.9% WACC) are unchanged for now pending briefing updates. The house maintains its SELL rating. Dividend yields (<5%) are no longer compelling, and Malakoff’s biggest earnings contributor TBP has only 7 years of concession remaining.

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