Malakoff Corporation Berhad

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Utilities & MEP Sector - Impact of Advanced Computing Chip Restrictions

🔷 The US restrictions on advanced computing chips have rattled the market, raising concerns about Malaysia's aspirations to become a data centre (DC) hub. Share prices of several Utilities and MEP players suffered due to fears of a potential slowdown in DC growth.

Utilities ⚡
🔷 TENAGA's allowed return for the regulated business in RP4 (2025-2027) should remain unaffected as the IBR framework includes mechanisms to compensate for any shortfall in allowed return due to lower-than-expected electricity demand from DCs. The at-risk portion is the RM16.3bn Contingent Capex, which relies on higher DC-driven electricity demand. Nonetheless, Contingent Capex does not form part of tariffs, so unused portions will not impact the allowed return during RP4. Future RAB growth will most likely depend on energy transition related growth, where the long-term average annual grid investment is forecasted to be RM12.1bn from 2023 to 2050 (vs RP4 base capex of RM8.9bn annually), according to the NETR.

🔷 For MALAKOF, the slowdown in DC growth should have minimal impact. Regardless of DC demand, 4GW of gas-fired plants are set to have their PPAs/SLAs expire by 2028, necessitating replacement with newer, more efficient gas plants, ensuring continued opportunities for MALAKOF.

🔷 YTLPOWR (NR) could be most severely affected due to limited GPU quota for Tier 2 countries (c.50,000 H100 GPU equivalents over three years (2025-2027)), directly affecting the Group's ability to build competitive AI infrastructure.

MEP 👨‍🔧
🔷 For some of the MEP players under our coverage, we believe the market has overreacted. The direct exposure to data centres is relatively low for both UUE and PEKAT.

UUE: Over 90% of UUE's revenue in Malaysia comes from TNB, while DC-related jobs contribute approximately 6% to their FY24 revenue.

PEKAT: EPE Switchgear is expected to contribute c.30% to the net profit in FY25F. 70% of EPE Switchgear's revenue is derived from TNB, 20% from the private sector, and 10% from the exports. While they do supply directly to DCs, the contribution remains immaterial.

🔷 Meanwhile, TNB's Capex is not solely dependent on rising electricity demand. Approximately 30% is allocated for maintenance, while around 40% (historically based on RP3) is tied to energy transition initiatives. The at-risk portion in RP4 (2025-2027) is the RM16.3bn Contingent Capex, which relies on higher DC-driven electricity demand. Base Capex in RP4 (+29% from RP3) will likely proceed as planned, ensuring continued job opportunities for UUE and PEKAT from energy transition-driven growth (long term average of RM12.1bn Capex annually to upgrade the grid).

On the flip side,
🔷 Power cables are critical components used in power distribution systems in DCs. Any slowdown in DC growth could negatively affect SCGBHD's purchase orders.

🔷 The regulation is set to take effect 120 days from publication, giving the Trump administration time to weigh in. While there is a possibility that policies may loosen under the Trump administration, news reports suggest the Biden team discussed the measures with its successor. Additionally, export controls have largely been a bipartisan national security priority, reducing the likelihood of a full reversal.

🔷 Overall, we believe TENAGA, MALAKOF, PEKAT, and UUE's earnings should be relatively shielded from any slowdown in DC growth in the near to medium term. For now, we maintain our recommendation for TENAGA (BUY, TP: RM16.04), MALAKOF (BUY, TP: 0.96), PEKAT (BUY, TP: RM1.17), UUE (BUY, TP: RM1.10) and SCGBHD (BUY, TP: RM1.63).

$TENAGA / 5347 (TENAGA NASIONAL BHD) $MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD) $PEKAT / 0233 (PEKAT GROUP BERHAD)

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by TA

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
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$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
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KUALA LUMPUR: Alam Flora Sdn Bhd, a subsidiary of Malakoff Corporation Bhd, has introduced an upgraded waste management fleet, redesigned staff uniforms, and an innovative super-app called "Recyclink," all aimed at presenting a more modern and sustainable image. 

© New Straits Times Press (M) Bhd

PUTRAJAYA: ALAM Flora Sdn Bhd, a subsidiary of Malakoff Corporation Bhd, has launched an enhanced waste management fleet, redesigned uniforms for staff and contractors, and an innovative super-app called "Recyclink," all aimed at showcasing a more modern image.

© New Straits Times Press (M) Bhd

Titan Trading Notes For Friday [13/9/2024]:

$KLCI retraced further down towards the 1638 points region, but the overall market sentiment was considered to be a positive one as we saw a decent rebound from most counters. Daily trading volume however remains low around the 2.6 billion to end for the day.

Main stocks that showed strong buying momentum would be the likes of OCR, YTL, HAWK, VELESTO, WCT, YTLPOWR, SNS, AMBANK, HIAPTEK, INARI, NOTION, BJFOOD, PMETAL, MRCB, and SIME. All of which were able to sustain their rallies throughout the day on the top volumes list.

$YTL / 4677 (YTL CORPORATION BERHAD) breaking below its RM 3.40 main support levels, had been taking a huge hit over the past month here, heading back all the way back towards the RM 2.35+ major support levels on the daily chart here over the past week.

For now seems to be holding quite well above this region already as it was able to rebound back towards the RM 2.50+ levels. If able to sustain, could have at least a technical rebound back towards the RM 2.70+ regions soon in the coming weeks.

Will be monitoring YTL closely here as it's quite oversold over the past 1-2 months.

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD) despite the weak market sentiment over the past month, had been able to slowly inch up here and broke out towards the RM 0.97+ regions with good volume and buying momentum today.

Although still facing strong selling pressure above the RM 0.95+ regions, its formation of higher lows along the way is still a good sign, and could continue on towards the RM 1+ major resistance levels soon.

Will be monitoring MALAKOF closely here.

A lot of stocks despite showing rebound, are still on a short-mid term downtrend. I expect the overall market to be relatively slow and sideways, leaning more towards selling until at least the American Elections are over.

Will have to remain vigilant during these times and not make any mistakes.

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by TA
Buy – TP RM1.05

" Approaching a Capacity Replenishment Cycle?”

We walked away from MALAKOF’s recent briefing more convinced of its capacity replenishment prospects premised on: (1) An increasingly pressing need to accelerate capacity additions from rapidly declining reserve margins; (2) Sizeable scheduled new capacity which has yet to be awarded; (3) A tight demand-supply condition which could lead to better returns for any potential new capacity. Reiterate Buy at unchanged SOPderived TP of RM1.05. Further upside is seen should MALAKOF successfully secure new capacity.

Analyst:
Hafriz Hezry
hafrizhezry@ta.com.my

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by CGS
ADD – TP RM1.30

" Making a comeback”

■ Malakoff’s quarterly earnings delivery and cashflows have recovered notably, driven by better plant performance and more stable coal prices.
■ Surging power demand has, in our view, strengthened the group’s prospects for securing new power plants, solidifying longer-term earnings longevity.
■ Despite the 45% increase in share price YTD, valuations remain low at 4x 2025F EV/EBITDA. Reiterate Add with a higher DCF-based TP of RM1.30

Analyst:
Dharmini THURAISINGAM
dharmini@cgsi.com

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by TA
Buy - TP RM1.05

"Turning More Constructive"

We raise our sum-of-parts derived TP to RM1.05/share (from RM0.80/share previously) following the earnings upgrades in this report and after factoring a 3% ESG premium in accordance with our 4-star ESG rating for MALAKOF. We also lower our WACC assumption to 8.3% in our valuations to reflect improved prospects of capacity replenishment/renewal given increasing demand from data centre build-up in the country, coupled with existing plant-up plans under the PGDP. Given a more attractive return of +19.4% at our new TP, we upgrade Malakoff to Buy from Hold previously. At our revised earnings, MALAKOF is trading at 5.1x/4.9x FY25/26 EV/EBITDA, at a discount to historical mean of 5.2x. Dividend yield remains attractive at 5.1%-6.3% throughout our forecast horizon.

Analyst:
Kaladher Govindan
kaladher@ta.com.my

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by Public
Neutral – TP RM0.85

"Extension Of Thermal Plant’s PPA”

Malakoff posted third consecutive profit of RM93.6m in 2QFY24 from core net loss of RM318.7m in 2QFY23 due to the stable coal price, which provided positive fuel margin for its coal power plants. On QoQ basis, Malakoff recorded 50.4% increase in core net profit on lower weighted average coal costs for its Tanjung Bin Power Plant (TBP) and RM13m one-off gain from compensation for compulsory land acquisition. Overall, Malakoff’s 1HFY24 core net profit of RM155.8m exceeded our and consensus full year estimates at 63% and 58% respectively. The deviation from our numbers was mainly due to lower financing cost. Malakoff’s Prai Power Plant 350MW power purchase agreement (PPA) has been extended for another year until August 2025, a validation that thermal energy remains an essential base load for national power generation amid the surging electricity demand. We believe the extension could be renewed in annual basis as long as no new plant will be commissioned in near term. We raise our earnings forecasts by 36%/26%/26% for FY24F/25F/26F to reflect lower financing cost and Prai PPA extension. We maintain our Neutral call and increase our DCF-based TP to RM0.85 (from RM0.80)

Analyst:
Khairul Fahmi, CFA
khairul.fahmi@publicinvestbank.com.my

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by RHB
Buy – TP RM 1.11

"Decent Set Of Results In 1H24; Maintain BUY”

Maintain BUY and DCF-derived TP of MYR1.11, 33% upside with c.6% FY25F yield. Malakoff Corp’s 1H24 results came in within expectations, with a YoY turnaround led by the normalising fuel margin impact and stronger contributions from its subsidiary, Alam Flora. As MLK is an experienced independent power producer, we believe it is also well-positioned to benefit from the rising demand for energy over the long term.

Analyst:
Sean Lim, CFA
sean.lim@rhbgroup.com

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by Maybank
HOLD – TP RM 0.80

"Sequentially higher”

2Q24 results were below our expectation on lower-than-expected associate income. Operational details have not yet been disclosed pending a briefing today. We now view Malakoff’s risk-reward as being balanced, with its c.5% dividend yield providing some degree of downside support. Upgrade to HOLD (from SELL) with a higher SOP-based TP of MYR0.80 (+45%).

Analyst:
Tan Chi Wei, CFA
chiwei.t@maybank-ib.com

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by TA
HOLD– TP RM0.80

"Stabilising Earnings”

We place our TP (RM0.80/share based on SOP valuation) and Hold rating under review pending an analyst briefing later today.

Analyst:
Kaladher Govindan
kaladher@ta.com.my

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by CGS
ADD – TP RM1.00

"Earnings coming through nicely”

■ Malakoff’s earnings showed sustained strength in 2Q24. Normalised net profit grew 30% qoq driven by further improvements from its power business.
■ 1H24 core net profit was ahead of our expectations at 59% of our full-year forecast.
■ Recent pullback in its share price provides a good opportunity to accumulate. Maintain Add with a DCF-based TP of RM1.00

Analyst:
Dharmini THURAISINGAM
dharmini@cgsi.com

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD) $TENAGA / 5347 (TENAGA NASIONAL BHD)

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by TA
Hold - TP RM0.80

"Prai Receives PPA Extension"

Our Hold rating for MALAKOF is now under review pending MALAKOF’s analyst briefing tomorrow. However, we note that MALAKOF’s share price has rallied strongly prior to this announcement and the stock is now trading at 5.4x FY25 EV/EBITDA, at a slight premium to historical mean of 5.2x. Our sum-of- parts derived target price remains unchanged for now at RM0.80/share. While valuations appear stretched, dividend yields are attractive at 5.1%-6.3% yield over our forecast horizon.

Analyst:
Kaladher Govindan
kaladher@ta.com.my

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)
Research by CGS
Add - TP RM1.00

"PPA extension secured for expired gas plant"

■ Wins a 1+1 year PPA extension for its recently expired 350MW gas-fired power plant, secured through a restricted tender process by EC.
■ This clearly highlights the value that can be unlocked for its expired/expiring gas plant, especially in an environment of rapidly rising power demand.
■ Recent pullback in its share price a good opportunity to accumulate.

Analyst:
Dharmini THURAISINGAM
dharmini@cgsi.com

$TENAGA / 5347 (TENAGA NASIONAL BHD)
$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)

Titan Trading Notes For Tuesday [13/8/2024]:

$KLSE-KLCI resumed its upward momentum, rebounding back towards the 1606 points region with an overall positive market today after the panic sell off earlier last week. Daily trading volume settled around the 4 billion mark, which is still decent now.

Main stocks that showed strong buying momentum would be the likes of BARAKAH, MALAKOF, SEALINK, JIANKUN, NOVAMSC, JCY, SMETRIC, SNS, MIKROMB, NOTION, MUIPROP, OVERSEA, BPURI, PGLOBE, and SPSETIA. All of which were able to sustain their rallies throughout the day on the top volumes list.

$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD) broke out strong from its RM 0.90 major resistance levels and rallied all the way towards the RM 1 regions today with huge volume and buying momentum.

This came after analysts flagged potential short term power purchase extensions by the government for one of its powerplants. Over the past weeks, EPF had been acquiring millions of shares from the open market as well.

Will be monitoring MALAKOF closely here as seems to be on a very strong uptrend.

$NOTION / 0083 (NOTION VTEC BERHAD) on the other hand was definitely one of the star performers today as it was able to breakout all the way towards the RM 2 major resistance levels with huge volume and buying momentum today.

This came after a few broker houses, namely CGS, RHB, and Hong Leong Investment Bank had uplifted their cash upfront requirements to trade this counter. I believe this was the main reason that drove the share price back up after hitting the RM 1.50+ major support levels just last week during the panic sell off.

Will continue to monitor NOTION closely as I believe it will be on a long term uptrend here being one of the most profitable HDD suppliers among its peers.

$CEB / 5311 (CAPE EMS BERHAD) since breaking out towards the RM 0.53+ regions, had been retracing throughout the day, heading back towards the RM 0.50+ main support levels here despite the good market sentiment.

Could be potentially forming its higher low regions here and as long as able to sustain above its RM 0.50 main support levels, could continue on towards and beyond the RM 0.535 - RM 0.55+ regions soon for an uptrend continuation pattern.

Will be monitoring CEB closely here.

Data Center: Power-Hungry Beast

The boom in data center construction has drawn billions in FDI from the world’s leading tech companies, making a significant contribution to the nation’s GDP in the coming years. However, this growth has also led to a sharp increase in the demand for energy and water resources. The national energy company, $TENAGA / 5347 (TENAGA NASIONAL BHD), remains the primary supplier and distributor of electricity in the country. Historically, many companies ( $MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD) and $YTLPOWR / 6742 (YTL POWER INTERNATIONAL BHD)) have obtained licenses to operate independent power plants, contributing to a surplus in the national electricity grid.

Today, with the rapid rise of energy-intensive data centers, there is growing concern about whether the country will have sufficient energy supply to meet this increased demand. Peninsular Malaysia's power generation is heavily dependent on coal and natural gas, with renewable energy sources still in a nascent stage of development. Deputy Minister of Energy and Natural Resources stated in Parliament that the country’s energy reserve margin is projected to be between 28% and 36% from 2024 to 2030, reflecting the government's cautious optimism about meeting future energy demands.

According to TNB’s annual report, the company received 63 data center applications last year, mainly from Johor and the Klang Valley. As of April this year, 11 data centers, totaling 1,156 megawatts, have been connected to the grid. However, the total power requested from all applications amounts to 8.2 gigawatts, meaning less than 15% of this demand has been met. Given that these applications were submitted in 2023, and with new data center projects being announced this year, the actual demand for energy far exceeds current figures.

It's important to note that several countries, including Ireland, Germany, Singapore, China, and the United States, have imposed significant restrictions on data center construction due to environmental concerns. However, the Malaysian government has proactively launched the National Energy Transition Roadmap (NETR) and promoted various green energy initiatives, such as encouraging the installation of photovoltaic panels on rooftops and developing LSS projects, all aimed at increasing the production of green energy. The government has also introduced the SAVE program, offering rebates to buyers of energy-efficient appliances.

These initiatives are promising, but the question remains whether they can keep pace with the growing energy demands of these data centers. Despite Malaysia's abundant sunlight, photovoltaic panels only generate power during daylight hours, meaning that a 100-megawatt data center might require 400 to 500 megawatts of solar power to meet its needs.

The surge in data centers presents economic opportunities. Domestic companies, such as those involved in solar's EPCC, including $SLVEST / 0215 (SOLARVEST HOLDINGS BERHAD), $SUNVIEW / 0262 (SUNVIEW GROUP BERHAD), SAMAIDEN, and PEKAT, as well as LSS players like RANHILL, UZMA, JAKS, GOPENG, and RENEUCO, stand to benefit. Additionally, the stock prices of companies producing cables and related electrical components, and those involved in cable-laying projects, have also increased a lot. Independent power plants whose contracts are nearing expiration might also find opportunities for renewal as the demand for energy surges.

$TENAGA / 5347 (TENAGA NASIONAL BHD)
$MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)

$RHBBANK / 1066 (RHB BANK BERHAD) $MAYBANK / 1155 (MALAYAN BANKING BERHAD) $TENAGA / 5347 (TENAGA NASIONAL BHD) $YTLPOWR / 6742 (YTL POWER INTERNATIONAL BHD) $MALAKOF / 5264 (MALAKOFF CORPORATION BERHAD)

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EMPLOYEES PROVIDENT FUND BOARD

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EMPLOYEES PROVIDENT FUND BOARD

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EMPLOYEES PROVIDENT FUND BOARD