In a note today, Maybank IB said it is maintaining its “sell” call on the country’s largest independent power producer (IPP), which is controlled by tycoon Syed Mokhtar Al-Bukhary. It also kept its target price (TP) unchanged at 55 sen.
The counter has risen 23% year-to-date (YTD) and 29% over the past one year.
It said while Malakoff had returned to the black following normalisation of fuel margins, there are near- and medium-term challenges with regard to power concession expiries.
For example, its biggest earnings contributor, the Tanjung Bin Power (TBP) plant in Johor, has only seven years of concession remaining while its Prai Power Plant’s concession expires this year.
It also has another power facility in Johor, the Tanjung Bin Energy (TBE) power plant. The two Johor plants have a total generation capacity of 3,100MW.
Malakoff has seven power plants in Johor, Selangor, Negeri Sembilan, Perak, and Penang within its power generation portfolio. Of these, the power purchase agreement (PPA) for two plants – GB3 power plant in Perak and Port Dickson power plant in Negeri Sembilan – have already expired.
Syed Mokhtar has a 38.45% deemed interest in Malakoff via his private vehicle Indra Citra Sdn Bhd, according to the group’s 2023 annual report.
Data centre hype
The investment bank also said Malakoff is unlikely to benefit from the surge of data centre investments into Johor.
“Despite Malakoff’s Johor presence, the existing plants do not tangibly benefit from the data centre-led demand boost.”
In Malaysia’s power purchase agreement (PPA) model for thermal plants, IPPs receive capacity payments based on availability, and conceptually do not benefit from increased generation, it noted.
“Thus, the data centre-led demand boost is not going to lead to higher earnings for TBP and TBE, in our view,” it said.
Maybank IB also said Malakoff’s dividend yields of less than 5% are “no longer compelling”.
Meanwhile, TA Securities is more bullish on Malakoff, upgrading its call to a “buy” with a higher TP of 80 sen per share from 75 sen previously.
It said that the implementation of third-party access (TPA) in September this year will benefit Malakoff as it allows IPPs to sell electricity directly to consumers.
“The TPA will unlikely affect Malakoff’s existing power plants with PPA, but the opportunity lies ahead for some of the group’s plants with expiring or expired PPA such as GB3.
“This is a positive boost for Malakoff as it increases the useful life of its plants and would provide recurring cash flow without being solely dependent on PPA with Tenaga Nasional,” it added in a recent note.
Malakoff’s shares closed 4.5 sen or 5.5% lower at 78 sen, valuing the group at RM3.87 billion.