MALAKOFF Bhd's full year earnings announced last week missed consensus estimates by about 3%, but investors remain bullish on the group's prospects, especially with its new power plants set to give the company an earnings boost.
According to Bloomberg data, six out of 10 analysts who issued their updates on Malakoff last month, have rated the stock as a “buy,” while three were “neutral” and one rated it as “under-perform.”
“The market expects Malakoff's earnings to double in three years, with full contribution from the Tanjung Bin power plant project,'' a fund manager said.
“On a longer term perspective, the company compares favourably against regional independent power producers (IPPs),'' he added.
For fiscal year ended Aug 31 (FY08/05), Malakoff made a net profit of RM510mil, up 11% higher from a year earlier, with earnings per share coming in at 57.3sen, which was 9% better than in 2004.
Malakoff currently owns stakes in five power plants around the country with combined generation capacity of 3,100MW. The full completion of its 90%-owned 3 X 700MW coal fired power plant in Tanjung Bin, Johor by August 2007 will raise installed capacity by 60% to 5,020MW.
RHB Research Institute, in its research note, said it expected Malakoff's power business to show better performance in the year ending Aug 31, 2006, on firm uptake from Tenaga Nasional Bhd as electricity consumption in the country continued to grow.
“Beyond FY08/07, the commissioning of the Tanjung Bin plant and overseas expansion are the growth impetus,'' it added.
Malakoff is part of a consortium shortlisted for a power and water desalination project worth US$2.5bil in Arab Saudi earlier this year.
A fund manager said the company was also exploring investment opportunities in Indonesia, Pakistan and other Middle East countries, and had indicated that it would only consider overseas ventures that have better returns than at home.
“A success in Saudi Arabia would lift Malakoff's ratings as it would be the group's first overseas project.''
US investment bank JPMorgan in a recent note on local IPPs, said it expected overseas expansion to remain the investment theme for companies like Malakoff and YTL POWER INTERNATIONAL BHD.
“YTL Power stands out with the best track record overseas,'' it said.
Billed as the country's first IPP, YTL Power has in recent years added a water concession in Britain, power transmission business in Australia and a 35% stake in an Indonesian power plant, to its portfolio.
With a cash pile of RM4.6bil, YTL Power is eyeing to expand in Indonesia and around the region, where investment returns are around 15% to 20%.
“We think both Malakoff an YTL Power are likely to outperform the KLCI over the next 12 months, but we believe Malakoff has better upside potential with its clearer visibility of earnings growth,'' the American investment bank said.
It said while Malakoff could rely on new income from the Tanjung Bin project to boost profits, YTL Power needed to acquire new assets to inject excitement into its share performance.
“YTL Power has performed well this year, providing total returns of 30% to shareholders. We think it would continue to outperform the index if it distributes the 7% annual yield expected,'' JPMorgan said.
For the year ended June 30, YTL Power's net profit grew 21% to RM742mil, while earnings per share (EPS) came in at 15.8 sen. Despite YTL Power's stable growth outlook and rich dividend profile, the foreign investors' holding in the company stands at a mere 5% to its issued capital, compared with Malakoff's 30%.
Year-to-date, Malakoff's share price has risen 7% to RM7.75 as of last Friday, while YTL Power shares have surged 27% to RM2.17.
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