MALAKOF: Earnings Meet Consensus Amidst Fuel Margin Headwinds, Capacity Expansion Outlook Strong

Malakoff Corporation Berhad reported a mixed performance for its interim half-year 2025 (IHFY25) results, with core net profit falling short of internal estimates but aligning with broader market consensus expectations. The power generator’s earnings were impacted by negative fuel margins, though robust prospects for future capacity replenishment continue to underpin an analyst’s “Buy” recommendation.

Performance Review

The company recorded an IHFY25 core net profit of RM133 million, representing a 10% year-on-year decline. While this figure accounted for 43% of TA Securities’ full-year forecast, it was within the broader market consensus, representing 51% of full-year estimates. The earnings decline was primarily attributed to a significant negative fuel margin at the Tanjung Bin Power (TBP) plant, a direct consequence of lower Applicable Coal Price. However, these headwinds were partially mitigated by a reversal of coal inventory net realisable value (NRV) and enhanced contributions from joint ventures and associates. On a sequential basis, earnings showed marginal growth of 0.4% quarter-on-quarter, driven by improved associate and JV earnings and a lower effective tax rate. In light of the IHFY25 performance, TA Securities has adjusted its FY25F-27F net profit forecasts downwards by 7% to 14%. The company also declared an interim dividend of 1.5 sen per share, with a dividend payout ratio (DPR) of 76%.

Future Outlook and Growth Drivers

Despite the recent earnings recalibration, Malakoff is actively pursuing several strategic initiatives to bolster its future capacity. The company is positioned as a potential front runner for the Energy Commission’s (EC) latest gas generation capacity tender, leveraging its readily available sites for new plants. Malakoff has submitted three bids under Category I of the tender, aiming to extend the Power Purchase Agreements (PPAs) for Prai Power (350MW, expiring September 2025), GB3 (640MW, expired December 2022), and SEV (1303MW, expiring June 2027) until 2029. Partial results for these extensions are anticipated by year-end, aligning with the 2025-2029 commissioning targets.

Beyond the EC tender, Malakoff is also in negotiations with regulators to develop two new power generation assets in Negeri Sembilan and Kedah, with a potential aggregate capacity of 2.8GW. In the renewable energy sector, the group is developing a Waste-to-Energy (WTE) plant in Sg. Udang, Melaka, which will handle 1056 tonnes per day of waste and generate 22MW of power. A 34-year concession agreement for this project has been signed, with construction expected to commence in 2QFY26. Additional Renewable Energy (RE) prospects include bidding for solar capacity under the LSS5+ auction cycle, exploring RE supply to the MMC Group, and a 100MW/400MWh Battery Energy Storage System (BESS) project under the MyBeST tender.

Analyst Recommendation

TA Securities has maintained its “Buy” recommendation on Malakoff, despite slightly lowering its target price (TP) from RM1.08 to RM1.04. The adjustment reflects the recent earnings revision, but the investment bank remains confident in the company’s improving capacity replenishment prospects. Currently, Malakoff trades at 5.0x FY26F EV/EBITDA, a discount to its historical mean of 5.2x. Analysts believe that valuations could re-rate higher towards +1 standard deviation (6.1x EV/EBITDA), driven by tightening electricity market conditions and enhanced prospects for securing new capacity.