KUALA LUMPUR (Jan 15): PublicInvest Research has revised upwards its earnings forecasts for Malakoff Corp Bhd by 4.4% for the financial year 2024 (FY2024) and by 9.8% for FY2025, due to growth in its environmental solutions segment, subsequently upgrading its call to "outperform" from "trading buy" and lifting its target price from 70 sen to 80 sen.

"We came away from a meeting with management feeling positive on Malakoff’s earnings recovery and its prospect on cashflow generation. The setback on negative fuel margin in three consecutive quarters is expected to be resolved from 4QFY2023 (fourth quarter of FY2023) onwards on the back of stable coal prices," said the research house in a note on Monday.

Moreover, PublicInvest said the thermal energy business looks promising, with plans for a new capacity of 4,000 megawatts (MW) to be installed by 2030.

As part of its strategic aim to achieve a target of 1,400MW in its renewable energy (RE) portfolio by 2031, the Malakoff-Alam Flora joint venture is set to secure a waste-to-energy (WTE) plant project in Melaka, in a bid to achieve a synergistic blend of thermal energy and waste management.

PublicInvest noted the negative fuel margins suffered by Malakoff, which resulted in a RM480 million net loss for the nine-month period of FY2023 (9MFY2023), are set to be resolved from 4QFY2023 with stable coal prices predicted. Coal prices reached a 28-month low in November 2023 at US$119 (RM553.35) per metric ton (MT), stabilising between US$120-150 per MT in the fourth quarter of 2023, which should help balance Malakoff’s fuel cost.

Despite government targets of 70% RE by 2050, thermal energy remains crucial. Three of Malakoff's power purchase agreements will expire between 2024 and 2029, but new power plants are due to be installed, replacing second generation independent power producers (IPPs). Given Malakoff's status and record as the country’s largest IPP, it's likely to secure these plants.

In the environmental solutions segment, domestic waste generation is expected to increase from 14 million MT per year in 2021 to 19 million MT per year in 2050, reflecting population growth. Malakoff is continually developing waste facilities such as port reception facilities and eco-park centres.

Furthermore, Malakoff has acquired a 49% equity interest in E-Idaman SB for RM133.2 million to expand its waste management reach and provide steady income until 2033.

Developing synergy in thermal energy and waste management, the Malakoff-Alam Flora JV looks set to secure a 22MW WTE plant concession in Melaka, which would generate electricity from 800MT of waste daily from four local Malaka authorities. The WTE plant will employ a sophisticated burner capable of burning domestic waste with 50%-60% general wetness.

Finally, while aiming to achieve a 1,400MW RE target by 2031, Malakoff is taking a cautious approach to investments in RE projects or acquisitions to ensure a balance between risk and return.

Despite high capital expenditure, projects using advanced technology, such as the WTE project, are expected to yield a reasonable mid-single-digit internal rate of return while minimising operational risks and cost overruns.