MALAKOF: Utilities Firm Poised for Strong Rebound with Operational Resumption and Strategic Growth

A leading utilities firm is set to see its earnings normalize this year, driven by the full resumption of key operational assets and strategic power purchase agreement (PPA) extensions. Despite recent operational setbacks that impacted short-term performance, analysts anticipate a robust rebound.

Performance Review and Operational Resilience

The company’s Tanjung Bin Energy (TBE) plant fully resumed operations on January 28, following a three-month shutdown due to a fire incident in October 2025. This incident led to an estimated MYR100 million revenue loss in 4Q25 and contributed to a 22% reduction in FY25F earnings. However, the resetting of TBE’s unscheduled outage rate (UOR) is expected to ensure full-capacity payments going forward, signalling a return to normal contributions.

Further boosting the outlook, the firm secured PPA extensions for three gas-fired plants—Segari, Prai, and GB3—until 2029. These extensions, along with full-capacity contributions from TBE, are projected to lift FY26-27F earnings by 12-13%. While 4Q25 earnings are expected to be weaker at MYR19 million, a 43% year-on-year decline, a strong recovery is anticipated from 1Q26 onwards. Overall, the company is expected to achieve a 9% earnings CAGR for the FY24-27 period, maintaining a 70% dividend payout ratio that translates to 4-5% yields.

Strategic Expansion and Future Growth

Looking ahead, the company is a strong contender to build a new 1,400MW gas-fired plant, having secured advanced gas turbines. This potential project, valued at MYR5.6 billion, could significantly enhance future earnings. There is also potential for developing another 1,400MW plant in the northern region of West Malaysia.

In line with broader energy transition goals, the firm is actively expanding its renewable energy (RE) capacity. It increased RE capacity to 173MW in 2024 and aims to double this to 1.2GW by 2030, which is projected to reduce greenhouse gas emissions by 3%. Key projects include large-scale solar and small hydropower plants coming online between 2027 and 2028. Additionally, the company is targeting a 61% growth in waste management, aiming to handle 10,000 tonnes per day by 2030, as part of its strategic transformation initiatives to achieve 10GW in power generating capacity by 2031, with RE comprising 14%.

Challenges and Investment Recommendation

The recent fire at the TBE plant and a coal unloader collapse at the Tanjung Bin jetty in December, which unfortunately resulted in two fatalities, led to a slight reduction in the firm’s ESG score from 2.5 to 2.4, and an increased ESG discount to 12%. However, management’s proactive steps to address these issues and focus on improving carbon emissions and injury rates suggest potential for future ESG rating improvements.

Given the expected earnings rebound and strategic growth initiatives, analysts maintain a BUY recommendation. The target price has been set at RM0.25, representing a 25.0% upside from the last traded price of RM0.20. This new target price is based on a 20x FY26 P/E, aligned with the company’s three-year mean. Downside risks include potential delays in coal transport operations and unexpected plant outages.