CGS International
May 27, 2025

Malakoff Corporation: Strong Rebound in 1Q25 and Strategic Moves Position Group for Long-Term Growth

Overview: A Rebound Quarter and Power Sector Opportunities

Malakoff Corporation kicked off 2025 with a solid operational turnaround, showcasing a sharp sequential improvement in normalized net profit and signaling renewed strategic momentum in Malaysia’s independent power producer (IPP) sector. The group’s 1Q25 normalised net profit surged to RM74 million, up from RM42 million in 4Q24, primarily due to the absence of negative fuel margins and penalty payments linked to the Tanjung Bin Energy plant. This improvement was partially offset by weaker contributions from associates and joint ventures. On a year-on-year basis, however, net profit was 18% lower, largely due to reduced income from Prai Power amid lower tariffs during the extension period.
Despite normalized net profit meeting expectations at 24% of full-year targets, pre-tax profit lagged at only 18% due to higher-than-expected depreciation and lower associate/JV contributions. Consequently, earnings forecasts for 2025 and 2026 were revised down by 8-13%, with a new sum-of-parts (SOP) based target price set at RM1.15, down from RM1.30.

Strategic Updates: Bidding for Power Plant Extensions and Growth Initiatives

Malakoff is actively pursuing bids to extend several of its gas power plants—GB3 (640MW), Prai Power (350MW), and Segari (1,303MW)—under the latest Energy Commission (EC) tender, which closes in June 2025. These tenders will not affect the initial letters of notification (ILONs) that Malakoff has already received for two new gas-fired power plants, which are progressing towards formalization.
Other notable updates:

• Progress continues on the 84MW small hydro project in Kelantan.
• The acquisition of a 49% stake in E-Idaman, giving Malakoff exposure to waste management in Perlis and Kedah, was finalized in February 2025 and contributed approximately RM2 million to 1Q25 group PAT.

Valuation, Dividends, and Share Price Performance

Malakoff’s share price has underperformed over the last nine months, reflecting muted 2H24 earnings and slow progress on growth projects. However, strong power demand in Malaysia and the national energy transition agenda underpin positive long-term prospects, particularly for new plant awards.
Key highlights:

• Valuation remains undemanding, with 2025F EV/EBITDA below 4x—at the low end of Malakoff’s historical range.
• Net dividend yields exceed 5.5% and are expected to recover, with a projected dividend payout ratio of 85-90% from 2025F onwards.
• Re-rating catalysts include final investment decisions for new projects, repowering of existing assets, and dividend recovery in 2024F.
• Risks include a possible return of negative fuel margins and unplanned plant outages.

Key Financial Metrics

Peer Comparison: Positioning in the Power and Utilities Sector

Malakoff operates in a competitive landscape, with several major listed players in Malaysia’s power and utilities sector. Here’s a detailed breakdown:

ESG Strategy: Ambitious Targets and Measured Progress

Malakoff’s “2.0 Strategic Transformation” places ESG at the core, with five key growth pillars:

1. Thermal Power Generation
2. Renewable Energy
3. Environmental Solutions
4. Water Desalination
5. Strategic Bets (e.g., disruptive green tech)

Key ESG highlights:

• FTSE4Good ESG Grading Band: 3 stars (rating: 2.5-3.6)
• No new coal investments; Net Zero Emissions by 2050
• GHG emissions intensity reduction target: 30% by 2031 (from 2019 baseline)
• Active trials and feasibility studies for co-firing with biomass, ammonia, and hydrogen (MoU with ITOCHU Corporation)
• RE capacity target: 1,400 MW by 2031 (2024: 173 MW)
• Rapid growth in commercial and industrial solar projects (22.1MWp secured in 2024 vs. 12.23MWp in 2023); 60MW of solar rooftop capacity and an 84MW small hydro plant in Kelantan
• Waste-to-Energy (WTE) and Battery Energy Storage System (BESS) initiatives underway

Environmental Solutions and Waste Management

Malakoff, through Alam Flora Sdn Bhd and subsidiaries, is a leading player in waste collection, public cleansing, and facilities management. The group is on track for its 2031 target of collecting 10,000 tonnes of waste per day and has surpassed its 2025 recycling rate goal with a current rate of 21.1%. While total recycling tonnage from concession areas fell 22.5% year-on-year in 2024, capacity increased by 18.6%. New partnerships include CA Cleaning for CapitaLand Group and a significant oil and gas sector win with Petronas Dagangan Berhad in Sabah and Sarawak.

Financial Performance: Trends, Cash Flow, and Balance Sheet Strength

Malakoff’s quarterly performance highlights the group’s resilience amidst sector volatility:

• Turnover for 1Q25 was RM2,028 million, down 11% year-on-year.
• Operating expenses decreased by 12% year-on-year to RM1,565 million in 1Q25.
• EBITDA margin improved, reaching 23% in 1Q25 compared to 22% in 1Q24.
• Normalised net profit for 1Q25 was RM74 million, a sequential improvement of 76% but down 18% year-on-year.
• Net gearing is forecast to remain elevated, moving from 104% in 2023 to 108% by 2027F.

Cash Flow and Capital Expenditure

• Operating cash flow remains robust, projected at RM1,364 million in 2025F.
• Capex is expected to rise sharply, reaching RM1,800 million in 2026F as new projects come online.
• Free cash flow to equity is positive in 2025F at RM258 million, though forecast to turn negative in 2026F and 2027F as investments ramp up.
• Total cash and equivalents are set to decrease from RM3,057 million in 2023A to RM1,532 million in 2027F, reflecting this investment phase.

Major Shareholders and Analyst Coverage

• MMC Corporation Berhad: 38.5%
• Permodalan Nasional Berhad (PNB): 11.8%
• Urusharta Jamaah Sdn. Bhd.: 10.2%

The stock enjoys robust analyst coverage, with seven “Buy” and five “Hold” recommendations, and no “Sell” calls. The consensus upside to the new RM1.15 target price is 43.8%.

Conclusion: Outlook and Investment Thesis

Malakoff Corporation is entering a transformative phase, supported by a strong rebound in operating performance, a clear growth roadmap in renewables and environmental solutions, and active engagement in Malaysia’s evolving power sector landscape. Valuations remain attractive, with potential catalysts from new project awards and dividend recovery. While headwinds such as margin risks and plant outages remain, Malakoff’s strategic pivot and cash flow strength position it as a compelling long-term play for investors focused on Malaysia’s energy transition and infrastructure growth.

Stock Ratings and Recommendation Framework

• Add: Total return expected to exceed 10% over the next 12 months.
• Hold: Total return between 0% and 10%.
• Reduce: Total return expected to be negative.

For the sector, the overall recommendation is “Add,” given the supportive macro and sector-specific catalysts. Investors should monitor upcoming power plant tenders, project FIDs, and further updates on Malakoff’s ESG and renewable energy initiatives.