PETALING JAYA: With coal prices having stabilised, the fuel margin shocks that impacted Malakoff Corp Bhd’s bottomline in the first half of financial year 2023 (1H23) are unlikely to recur, says Kenanga Research.
Another factor that bodes well for the independent power producer is the normalisation of its coal stockpile to only one month of consumption, which is the minimum required under a power purchase agreement (PPA).
These are some of the takeaways following a recent site visit to the group’s 2,100 megawatt (MW) Tanjung Bin Power (TBP) and the 1,000 MW Tanjung Bin Energy (TBE) power plants in Johor.
Malakoff had incurred a huge negative fuel margin (the difference between fuel income and fuel costs) amounting to RM676mil in 1H23.
“This is unlikely to be repeated in 2H23 as coal prices have stabilised after the steep plunge in 1H23. The negative fuel margin was also amplified by the accumulation of its coal stockpile to two-to -three months of consumption in January-to-April 2023 due to scheduled outages, following which TBP had a 55-day minor overhaul in January-to-February this year,” Kenanga said in a report.
The research firm said it understands that TBP is more vulnerable to volatility in fuel margins versus TBE.
“This is because TBP uses 70% high-grade bituminous coal, where prices are more volatile versus those of subgrade bituminous coal, which makes up 30% of its consumption. Meanwhile, TBE uses 100% sub-grade bituminous coal. This explains a significantly higher negative fuel margin for TBP in 1HFY23 of RM643.6mil versus that of TBE’s RM32.4mil.”
In terms of renewable energy initiatives, Malakoff will be embarking on a pilot biomass co-firing project at its plant in 2024 with a target of burning 15% biomass alongside coal by 2027.
For future development, Kenanga said there is readily available land, such as the Windsor Estate in Perak and Gadek Estate in Melaka, for greenfield projects as well as brownfield sites of expiring power plants for redevelopment.
“A potentially cleaner and efficient new 2,250 MW combined-cycle gas turbine power plant is able to replace TBP whose PPA is expiring in 2031, while there are four potential sites for solar photovoltaics in Tanjung Bin, which could potentially generate 178 MW of solar energy,” it added.
Kenanga Research is keeping its “market perform” rating with a target price of 62 sen for Malakoff.