KUALA LUMPUR: Kenanga research is positive on Malakoff Corp Bhd's acquisition of Alam Flora as it fits into the group's long-term aspiration of venturing into the waste-turn-energy and renewable energy sectors.
Kenanga said in a research note today that Malakoff is in urgent need of of a new source of earnings as the power purchase agreement (PPA) extension for PD Power will expire this month.
It said the completion of the Alam Flora acquisition is expected by 3Q19 given the extension of fulifilling the conditions precedent to the SSA to July 31 from Jan 31, pending approval from the authorities.
Meanwhile, Malakoff's recently announced earnings results beat Kenanga's forecasts by 25% with 4Q18 core profit rising 200% sequentially to RM85.5mil and bringing FY18 core profit to RM219.4mil.
"The main discrepancy is because we had earlier expected TBE’s boiler wall tube leak in 3Q18 to be prolonged, but it was resolved promptly and did not affect 4Q18 results," said Kenanga.
Year-on-year, 4Q18 core profit rose 188% from RM29.7mil in 4Q17 due to depreciation and interest costs experienced in the earlier quarter.
Core profit however fell 20% to RM219.4mil from RM275.9mil due to a capacity payment cut of 69% or RM204.6mil at the SEV power plant after the PPA extension took effect in July 2017.
Kenanga upgraded its FY19 estimates on Malakoff by 26% and introduced its FY20 forecast in which it expects earnings to grow 4.5%.
"We keep our OUTPERFORM rating and target price of RM1 (based on 30% discount to its SoP valuation) unchanged," it said.
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