Kenanga Research said the news is positive as it addresses the declining earnings trend caused by the original mid-2027 expiry dates.
PETALING JAYA: The power purchase agreement (PPA) extensions secured by Malakoff Corp Bhd
for three of its power plants will enhance the group’s earnings visibility and reinforce the value of its legacy assets.
Last Friday, Malakoff announced that three of its gas power plants, with an aggregate capacity of 2.1GW, had been selected for an extension of operations until Dec 31, 2029, under Category 1 of the Energy Commission’s competitive bidding exercise.
The three plants are the Segari combined cycle gas turbine (CCGT) and the GB3 open cycle gas turbine plants, both in Perak, and the Prai CCGT plant in Penang.
Kenanga Research said the news is positive as it addresses the declining earnings trend caused by the original mid-2027 expiry dates.
“While returns under the extended PPAs are expected to be lower than under previous terms, the plants are already fully depreciated. The minimal capital expenditure required to maintain operations makes these extensions highly value-accretive,” the research house said in a report.
Assuming the capacity payment is maintained at RM170mil for 1,303MW and applying a weighted average cost of capital of 6.8%, Kenanga Research estimates that the three PPA extensions will add about five sen to Malakoff’s sum-of-parts valuation.
However, the announcement failed to excite investors, with Malakoff’s shares lower by one sen to 77 sen at the time of writing.
With the stock down about 7% year-to-date and 28% over the past three months, research houses like Kenanga Research and CGS International (CGSI) view the price weakness as a buying opportunity ahead of the Energy Commission’s announcement of the greenfield gas-fired plant winners, expected by the first quarter of this year.
A win would be a key catalyst for Malakoff’s long-term capacity replacement.
Kenanga Research has set a target price of RM1.09 for Malakoff, while CGSI is slightly more bullish, seeing potential upside to RM1.20.
Bloomberg data show a mixed analyst stance on Malakoff, with five “buy”, four “hold” and two “sell” calls.
Sentiment on the stock has been weighed down by recent incidents at its Tanjung Bin Energy (TBE) complex, including a fire and a coal unloader crane collapse.
The stock is now trading at about 4.9 times 2026 forecast earnings, near the lower end of its historical 10-year range.
Meanwhile, RHB Research has lowered Malakoff’s financial year 2025 (FY25) earnings estimate by 22% due to TBE’s three-month shutdown, but lifted FY26 to FY27 forecasts by 12% to 13% to factor in the gas plant PPA extensions and full-capacity output from TBE.
The research house said that assuming Malakoff wins a bid to build a 1,400MW gas-fired plant, it estimates a 12% project internal rate of return and a 40 sen, or 43%, accretion to its target price.
The new plant would be timely, providing a replacement for Malakoff’s 2,100MW TBE coal-fired facility due to be decommissioned in 2031.
However, others like AmResearch kept their “hold” call on Malakoff, noting that the group has faced operational challenges in the past.
Malakoff is expected to announce its fourth-quarter results for FY25 later this month.
With the stock down about 7% year to date and 28% over the past three months, research firms such as Kenanga Research and CGSI view the price weakness as a buying opportunity ahead of the Energy Commission’s announcement of the greenfield gas-fired plant winners, expected in the first quarter of this year.
