MALAKOF: Power Producer Secures Major Solar Project, Analysts Maintain ‘Buy’ Rating
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading power producer has successfully secured the rights to develop a significant 470MWac solar power plant, a move poised to bolster its renewable energy portfolio and enhance future earnings. Investment bank TA Securities has reiterated its ‘Buy’ recommendation, citing strong capacity replenishment prospects.
Strategic Project Win
The company, through an 80% stake in a consortium, was awarded the project under the highly competitive LSS5+ auction cycle. The solar plant is slated for Larut & Matang, Perak, and will operate under a 21-year Power Purchase Agreement (PPA). This new asset is expected to become the company’s largest utility-scale solar facility, significantly expanding its clean energy footprint.
Earlier indications from the company suggested a “competitive” tariff bid in the LSS5+ auction, designed to achieve a “reasonable Internal Rate of Return (IRR)” even after previous unsuccessful attempts in the original LSS5 bidding cycle. The plant will be strategically located on the company’s own 2000-acre land in Larut & Matang, Perak, providing ample space for the 470MWac facility.
Financial Outlook and Contribution
With an estimated capital expenditure (capex) of RM1.3 billion and a project IRR of 7%, financed with an 80:20 debt-to-equity ratio, the new solar plant is projected to contribute an average annual earnings of RM31 million. This could potentially enhance the group’s annual earnings by approximately +10% against its current FY27F net profit. However, it’s noted that the contribution in the early years will be relatively smaller (RM8 million to RM12 million) due to heavier finance costs associated with the initial investment.
Preliminary estimates also suggest a net value accretion of RM0.09 per share (RM421 million) from the LSS5+ asset, which could potentially boost the company’s SOP valuation by +8%.
Capacity Replenishment and Future Growth
Beyond the immediate impact of the LSS5+ win, the company is actively pursuing several other significant capacity replenishment initiatives. These include bids for PPA extensions and the development of new gas power plants under the Energy Commission’s latest tender. Furthermore, negotiations are underway for up to 2.8GW of new Combined Cycle Gas Turbine (CCGT) capacity in Negeri Sembilan and Kedah. The company is also advancing a 22MW Waste-to-Energy (WTE) plant in Sungai Udang, Melaka, with construction expected to commence in 2QFY26, signaling a robust pipeline for future growth.
Valuation and Recommendation
TA Securities maintains its earnings projection and a SOP-based Target Price (TP) of RM0.25. The investment bank’s “Buy” recommendation is underpinned by strong capacity replenishment prospects. The company is currently trading at 4.9x FY26F EV/EBITDA, which represents 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) given the tightening electricity market and improving prospects for securing new capacity.
