Malakoff 'buy', Malaysia Airports 'sell', MSM 'neutral'


By RHB Research


Target price: RM1.05

MALAKOFF Corp Bhd’s 4Q17 core net profit came in at RM50.8mil, bringing FY17 earnings to RM319mil, which is below RHB Research’s expectations at 81% of its forecast, but within consensus estimates.

RHB said the main reasons for the negative surprise were the larger than-expected negative impact from the Segari power purchase agreement (PPA) which started in July 2017 and the unplanned outages at the Tanjung Bin Energy (TBE) in 4Q17, resulting in lower capacity payments.

Malakoff declared a second interim dividend of 3.7 sen per share, bringing to a full-year dividend of 6.2 sen a share share, which implied yield of 6.8%.

RHB pointed out that the payout implied a dividend payout ratio of 97.2%, significantly higher than its historical payout of 60%-75%.

Management indicated during its briefing that the group would pursue a higher dividend payout policy to provide more value to the shareholders.

RHB said that the unplanned outages in 4Q17 at TBE was due to boiler failure.

The group is still rectifying the issue and it expects to see normalised capacity payment from the second quarter once problems are solved.

All the major PPAs are still intact, and RHB expected capacity payments to be flat year-on-year and similar revenue levels in 2018 (other than Segari, whose PPA was revised lower).

RHB has reduced its forecast on Malakoff’s FY18 and FY19 earnings by 43% and 31% respectively to account for lower capacity payments from Segari and conservatively pricing in two outages at TBE in FY18.

However, dividend payout assumption rises to 90% from 60% previously, leading to yields estimate of 5.2% and 5.9% for FY18 and FY19. Despite the earnings cut, RHB liked Malakoff for its attractive dividend yield, low valuation following a major share price correction on the TBE outage and Segari PPA revision, as well as the recurring cash flow from its PPAs.

It maintained a “buy” call on Malakoff, but warned the key risks to its recommendation would be on further outages at TBE and higher losses from its joint ventures.



By UOB Kay Hian Research


Target price: RM7.50

UOB Kay Hian Research said that while Malaysia Airports Holdings Bhd’s (MAHB) earnings were in the black, its 4Q17 earnings could effectively be a RM1.1mil loss (4Q16: net profit RM8.1mil) after the deduction of sukuk interest payments.

The lower net profit was mainly due to RM39.1mil losses for the Istanbul Sabiha Gokchen International Airport (ISG) from higher amortisation, write-back of RM115mil in depreciation and amortisation (D&A) for the Malaysian operations in 4Q16, and a 20% year-on-year rise in staff costs.

Despite that, Malaysian operations fared well with earnings before interest, taxes, depreciation and amortisation (EBITDA) soaring 249%.

Two weeks ago, Malaysian Aviation Commission (Mavcom) proposed to regulate MAHB’s aeronautical revenue structure in the interest of airlines and passengers. Mavcom has proposed a two-pronged approach.

Firstly, MAHB is allowed to earn a return in excess of its cost of capital (WACC), equal to the D&A cost over the long-term. Secondly, a revenue cap, price cap or a hybrid of two in determining the allowable passenger service charge (PSC) over a three-year period. The second criterion essentially restricts the quantum of aeronautical revenue that MAHB can receive.

UOB Kay Hian said such a measure, even if tweaked, would be highly restrictive and leave little room for positive operating leverage. Under the current operating agreement with the Government, MAHB’s PSC is reviewed every five years.

If Mavcom is successful, there is a strong likelihood that the new contract will supersede the previous agreement and negatively impact MAHB.

UOB Kay Hian said it raised MAHB’s 2018 net profit marginally by 2%. It pointed out that regulatory changes were the primary risk for the counter. It maintained a “sell” call on MAHB with a slightly higher target price of RM7.50 from RM7.30 previously.


By MIDF Research


Target price: RM4.09

MSM Malaysia Holdings Bhd posted its first losses since its initial public offering (IPO) in 2011.

For FY17, the group recorded a loss of RM32.6mil compared with profits of RM120.7mil in FY16 mainly due to higher raw material cost. MSM’s 4QFY17 earnings dropped by 9.1% year-on-year (y-o-y) to RM13.1mil.

MSM’s FY17 revenue grew marginally by 0.3% y-o-y to RM2.67bil, mainly supported by higher selling prices of refined sugar.

MIDF said the total average selling prices (ASP) increased by 1.2% y-o-y to RM2,600 per tonne. However, the increase in ASP was partially mitigated by the drop in sales volume to 997,000 tonne.

Revenue from the industries and export segments grew strongly by 11.8% y-o-y and 20% y-o-y, respectively.

Meanwhile, the domestic segment posted lower revenue growth of 3% y-o-y due to the drop in sales volume.

MIDF said the international raw sugar price has declined from 20 US cents per pound beginning of 2017 to 14 US cents per pound currently, a 30% y-o-y decline.

The research house said the average cost of raw sugar for MSM has dropped by a lower quantum due to the higher carry forward balance of cost raw sugar inventory from FY16. As such, MSM’s gross profit margin for FY17 declined to 5.6% from 12.4% in FY16. MIDF pointed out that in during the year, there was an increase in deferred tax liabilities which lead to recognition of additional income tax expense. This compounded the loss recorded in FY17 to RM32.6mil. It has maintained its earnings estimates on MSM pending an analyst briefing.

Moving forward, it expected MSM’s earnings to improve in FY18 driven by the recovery in sales volume to the domestic and industries segment.