MALAKOF: Strategic Renewable Energy Expansion Drives Target Price Upgrade

TA Securities has reiterated a “BUY” recommendation, significantly raising its target price to RM0.25, up from a previous valuation. The investment bank cited the robust pipeline of renewable energy projects and potential future wins as key drivers. The new target price represents a 25.0% upside from the last traded price of RM0.20. Analysts believe the company’s assets remain undervalued despite a recent operational setback.

Project Pipeline Fuels Growth

The company is actively expanding its footprint in the renewable energy sector with several key projects underway. Its 70%-owned subsidiary has secured a 30-year Power Purchase Agreement (PPA) for a 100MWac solar PV plant in Sarawak, anticipated to achieve Commercial Operation Date (COD) by May 2028. This project is expected to contribute approximately RM9 million to average annual earnings.

Further enhancing its renewable energy portfolio, the company is developing 84MW of minihydro plants in Kelantan, targeted for COD in 2027, with an estimated average annual earnings contribution of RM53 million. Another significant project is the 470MW LSS5+ plant, projected to achieve COD by 2028, adding an estimated RM31 million to average annual earnings. Additionally, a Waste-to-Energy (WTE) plant in Sg. Udang, Melaka, with a 34-year concession and 22MW power generation capacity, is also in development, estimated to contribute RM28 million annually.

Beyond these committed projects, the company is positioned as a front-runner in the Energy Commission’s gas generation capacity tender, where each successful bid could add an estimated RM86 million to annual earnings. Negotiations are also underway for the development of two new Combined Cycle Gas Turbine (CCGT) plants with an aggregate capacity of 2.8GW.

Temporary Operational Setback

The positive outlook comes despite a recent fire incident at the flue gas desulfurization (FGD) facility of the Tanjung Bin Energy (TBE) plant. While the incident did not affect the plant’s main generation components, the TBE facility is currently shut down for repairs as the FGD system is crucial for meeting plant emissions regulations.

This temporary shutdown, which occurred while the plant was undergoing scheduled maintenance, is anticipated to pose some risk to FY25F earnings, with an estimated revenue loss of RM1.8 million per day beyond contractual allowances. Infrastructure damages, however, are covered by insurance, mitigating some financial impact. A forensic investigation is ongoing, and a site assessment will provide further clarity on the estimated downtime.

Valuation and Recommendation

TA Securities views the current share price weakness, particularly in light of the TBE fire incident, as a compelling opportunity to accumulate shares. The investment bank emphasized that the company’s robust pipeline of incoming assets over the next 4-5 years is not yet fully reflected in its current valuation, underscoring its “deeply undervalued” status. The upgraded target price integrates the valuation accretion from the new minihydro, LSS5+, LSS Sarawak, and WTE assets. Further upside could materialize from additional gas capacity wins or PPA extensions.