KUALA LUMPUR: AmInvestment Research has maintained its "hold" call on Malakoff Corp Bhd with a lower SOP-based fair value of RM1.12 a share as it trims its earnings forecast.
"While valuations appear increasingly attractive, growth prospects remain opaque as we find execution wanting. Dividend yields no longer prove as attractive given our downward revision," it said on Tuesday.
Malakoff's Q2FY17 core net profit was up 13% year-on-year and brought earnings in the first half of this year to RM182mil. This was 7% and 4% lower than AmInvestment Research's earnings estimates respectively.
Malakoff decared an interim dividend of 2.5 sen a share, below its estimate of 3.5 sen a share. AmInvestment Research has adjusted its dividend per share to reflect a minimum 70% payout as opposed to the previously assumed 90% payout.
"Top line for the period grew 23% off higher coal prices and capacity factor attributed to TBP (2,100MW) despite TBE’s (1,000MW) planned outage. Elevated coal prices inflated energy income, driving 43% more in revenue as capacity income was marginally higher.
"Going forward, we expect full-year capacity income to decline year-on-year as Segari Energy Venture (SEV) will see close to 70% lower capacity rates arising from revised tariff rates in H2. SEV’s contribution consists close to 30% of total capacity income," the research house said.
EBIT margins declined 2.5ppts to 19.4% for H1FY17 on the back of higher fuel cost and a one-off recognition of an insurance claim amounting to RM58mil in the corresponding period as it more than offset lower O&M cost. The claim was on a rotor replacement at its Prai power plant.
Malakoff's profit from its associates and joint venture contributed RM61mil with a one-off RM20mil insurance claim from Kapar and turnaround in its GCC assets. However, Kapar remains operationally unprofitable.
"We lower FY17/18/19F earnings by 14%/6%/4% to reflect our more conservative SEV and Kapar contributions. The key re-rating catalyst to Malakoff is value accretive M&As while the key downside risks to our call are unplanned outages and lower-than-expected contributions from its associates," says AmInvestment Research.
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