KUALA LUMPUR: Affin Hwang Capital Research maintained its Buy call on Malakoff Corp Bhd with an unchanged target price of RM1.92, on the power producer’s stable cash flows and defensive earnings.
The research house expects better earnings in 2H15, mainly driven by Tanjung Bin with all three units back to full capacity, as well as savings in finance costs from redeeming the RM1.8bil sukuk to be catalysts for the stock.
“With lower capex intensity in 2016, we believe there is room for a higher dividend payout,” it said in a note on Friday.
Affin Hwang Research said the company’s management had reiterated its growth strategy of pursuing M&As, and is open to both local and foreign assets.
In the short term, it said, the commissioning of the 1,000MW Tanjung Bin Energy plant by March 2016 was on track and was likely drive earnings growth in FY16.
“Management explained that Malaysia’s fuel mix is shifting from gas to coal, as coal is cheaper than gas.
“Recall that the Energy Commission has already outlined a long-term road map for new projects up to 2023 with coal contributing a larger mix than gas.
“In addition, there is clean coal technology today, which can capture most of the carbon dioxide in a plant’s emission and then liquefy it for storage or for commercial use,” it said.
The research house added that Malakoff’s management had allayed concerns that political issues would have an impact on the power generation industry.
“Management pointed out that the government remained committed to new plant-ups as well as re-powering the first generation plants,” it said.
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