CGS-CIMB cuts Malakoff’s FY21-22F EPS by 14-16% as FY20 results below expectations

KUALA LUMPUR (Feb 22): CGS-CIMB Research has cut Malakoff Corp Bhd’s earnings per share (EPS) forecasted for the financial year ending Dec 31, 2021 (FY21F)-FY22F by 14%-16% following its FY20 results that came in below expectations, and as the research house factored in higher depreciation and lower contributions from the group’s associates/joint ventures (JVs).

Malakoff’s FY20 core net profit came in below expectations at 77% of CGS-CIMB’s and 75% of the Bloomberg consensus full-year estimates due to lower-than expected revenue (due to lower energy payments and a decrease in the dispatch factor), higher depreciation cost and lower-than-expected contributions from associates/JVs.

However, the research house maintained its “add” rating of the stock and raised its sum-of-parts (SOP)-based target price (TP) to RM1.06, from RM1.05, as it updated Malakoff’s cash and debt amounts with end-FY20 numbers.

CGS-CIMB analyst Ngo Siew Teng said that the rating was given after taking into account the group’s improving earnings profile due to an additional profit contribution from Alam Flora and lower finance cost, a less stretched balance sheet as its net gearing ratio shrank from two times at end-FY18 to 1.5 times at end-FY20, as well as its dividend yield of 6%-7% forecasted for FY21-23F.

According to Ngo, Malakoff’s FY20 core net profit (excluding foreign exchange [forex] and settlement amounts) rose 21% year-on-year (y-o-y), largely driven by the maiden full-year contribution from Alam Flora (+RM65 million), lower financing cost (-11% y-o-y) and a higher share of profit from associates/JVs (RM172 million versus -RM22 million for FY19) due to an increased stake in Shuaibah and the absence of share of losses from Kapar Energy Ventures (KEV).

In terms of the group’s core earnings for the fourth quarter ended Dec 31, 2020 (4QFY20), it expanded 57% y-o-y due to the recent Covid-19 outbreak and recent floods in the East Coast of Peninsular Malaysia, which spurred demand for Alam Flora’s disinfection and post-flood cleaning services, CGS-CIMB noted.

It added that Malakoff is committed to maintaining its dividend policy of paying out a minimum 70% of its net profit to shareholders.

“The group has been paying out an average of over 90% of its earnings as dividends since 2013, with 100% dividend payouts for 2017-19. The final dividend for FY20 will be announced once the audited financial statements are completed in March 2021 (FY19’s final dividend per share [DPS]: 4.11 sen). To recap, the group declared a 2.8 sen interim DPS for 2QFY20 (versus a 2.44 sen DPS for 2QFY19),” it stated.

Malakoff was down 1.8% or 1.5 sen to 82 sen this morning.

Source: TheEdgeMarkets