Alam Flora seen lifting Malakoff’s FY19 earnings by 4%

PETALING JAYA: Malakoff Corp Bhd’s acquisition of Alam Flora is expected to improve its earnings by 4% in financial year ending Dec 31 (FY19) based on an earnings contribution of five months, according to AmInvestment Bank.

On a full-year basis, Alam Flora would increase Malakoff’s FY20 net profit by 10% and boost Malakoff’s fair value from 85 sen per share to about 94 sen a share, AmInvestment analyst Gan Huey Ling said in a note last Friday.

According to Gan, the research house will upgrade Malakoff’s FY19 earnings forecast if the RM944.6 million acquisition of 97.4% of Alam Flora from DRB-Hicom Bhd is completed by the third quarter of 2019 (Q3FY19).

Recently, Malakoff announced that the cut-off date for the fulfilment of the conditions for the acquisition has been extended to July 31.

“We have assumed Malakoff’s gross dividend per share to be 3.5 sen for FY18 and 4 sen for FY19. These translate into decent dividend yields of 4.2% for FY18 and 4.8% for FY19. Implied net dividend payouts are 93% for FY18 and 100% for FY19,” she added.

The research house maintained its “hold” recommendation on Malakoff with an unchanged discounted cash flow-based fair value of 85 sen per share. Its fair value of 85 sen per share implies an FY19 price earnings (PE) of 21.2 times and FY20 PE of 20.7 times.

Going forward, Malakoff has scheduled 100 days of maintenance shutdowns for the Tanjung Bin Energy (TBE) power plant in FY19.

As these are scheduled outages, Gan said the group will still receive capacity payments from Tenaga Nasional Bhd in FY19.

“We gather that there has not been any unplanned outage at the power plants in 4QFY18,” she said.

However, she said TBE power plant’s earnings may still be slightly affected as the rectification works for the voltage regulator, which started in early September, was only completed at the end of October 2018.

Recall that there were unplanned outages at the TBE power plant, GB3 power plant and KEV (Kapar Energy Ventures) power plant in Q3FY18.

Gan also noted that Malakoff is negotiating with General Electric, which is the main contractor, on the compensation for the unplanned outages at the TBE power plant.

She said the compensation would not be able to make up for the loss in capacity payments. However, Malakoff is hoping to extend the warranty period for the equipment and parts and/or receive compensation to cover the cost of repair or rectification works.

Previously, Malakoff’s target was to achieve the stipulated power purchase agreement threshold unplanned outage level of 6% by February 2019.

However, due to the numerous unplanned outages in Q3FY18, the timeline has been shifted to September 2019.

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