MALAKOFF Bhd will try to maximise dividend payout without compromising growth.
Managing director Ahmad Jauhari Yahya said although the group did not have a “clear cut” dividend policy, Malakoff would try to return as much profit as possible to shareholders so long as such payment would not affect the group's expansion.
Malakoff needed to retain certain profits for capital expenditure, he told reporters after the group's AGM in Kuala Lumpur yesterday.
The independent power producer's (IPP) dividend per share has increased in tandem with its rising earnings in the past five financial years.
In the last financial year ended Aug 31, the board had declared its first ever interim dividend of 13 sen per share and a final dividend of 15 sen per share, compared with total dividend of 25 sen per share in the preceding financial year.
“We will make it a standard practice (to declare an interim dividend),'' said Ahmad Jauhari.
The group was confident of performing better this year than in the previous year, because it should be getting full-year contributions from the Kapar plant, said Ahmad Jauhari.
Malakoff, which is responsible for almost 18% of the power generation in peninsular Malaysia, holds a 40% stake in Kapar Energy Ventures Sdn Bhd that owns the Kapar plant in Selangor.
The Kapar plant started contributing to the group's earnings in the fourth financial quarter ended Aug 31 last year, in which period the share of profit from associate companies was RM15mil, up from RM6.68mil in the corresponding period before.
For the entire year the share of profit from associate companies more than doubled to RM46.7mil, from RM22.5mil in 2003.
According to Reuters Global Estimates, market consensus expects the IPP's net profit to expand 16% to RM533.15mil or 60.2 sen per share in the current financial year from RM460mil or 52.4 sen in the previous year.
Given the higher earnings forecast and consistent increase in dividend payout, investment analysts have categorised Malakoff as a dividend stock to watch.
“Malakoff is a dividend play story,'' said a head of research of a foreign stockbroking house.
According to Bloomberg, Citigroup Smith Barney put Malakoff on its recommendation list with a target price of RM8.30 last Friday.
Other stockbrokers recommending the stock included Kim Eng Securities, RHB Research and CLSA.
Indeed, Malakoff's share price had exceeded these analysts' fair values ranging from RM7 to RM7.48. The stock finished at a record high of RM7.60 yesterday, up 35 sen. The IPP was one of the best performing heavyweights last year, gaining 34.5% or RM1.85.
With the limited growth potential in the local power generation industry, IPPs, including Malakoff, are seeking opportunities offshore to cultivate future earnings growth.
Both YTL Power International Bhd and Tanjong plc, which had privatised Powertek Bhd two years ago, have acquired power plants overseas. But Malakoff has yet to announce a similar move.
When asked about this, Ahmad Jauhari said: “We are always looking for opportunities, either investment or acquisition, locally and overseas.”
Some analysts pointed out that it might be a bit difficult for Malakoff to venture out given its current huge borrowings, whereas its peers, YTL Power and Tanjong, are cash-rich.
Ahmad Jauhari also said Malakoff's gearing ratio would rise to three times in 2007, from 1.6 times now.
The group is currently building the RM7.8bil Tanjong Bin power plant in Serkat, Johor. The coal-fired power plant will have generation capacity of 2,100MW.
Malakoff now has effective capacity of 2,885MW. The completion of Tanjung Bin power plant will boost its capacity substantially.
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