PETALING JAYA: Affin Hwang Investment Bank is optimistic about the prospects of Malakoff Corp Bhd, as it believes that Malaysia may need to boost its power generation capacity by 2030 to meet demand growth, replace retiring capacity and maintain an adequate reserve margin.
In a note to clients, it said the country would require an additional 10 gigawatts (GW) to 11GW of generation capacity in another five or six years, and possible short-term measures to meet this need are extending expired and expiring Power Purchase Agreements (PPAs) for existing gas plants for approximately 1.5GW to 2.0GW of capacity.
“Long-term solutions will likely be open tenders for new combined cycle gas turbine (CCGT) plants.
“In an unlikely event where the government is to extend all expiring CCGT, Malaysia will still need five GW to six GW of new capacity by 2030 to meet demand growth and replace retiring coal-plants,” it projected.
Looking ahead, it expects the thermal power generation segment to see plenty of business opportunities, as it sees the need for an increase in Malaysia generation capacity to be driven by the mushrooming of data centres and to replace the retired and retiring power plants.
Furthermore, the research unit said Malakoff is the largest independent power producer (IPP) in Peninsular Malaysia with effective thermal generation capacity of 5.3GW and a market share of 21%.
With the group having two recently retired CCGT plants in GB3 Lumut) and Prai, Affin Hwang believes that Malakoff may benefit from short-term PPA extensions.
Elaborating on this point, it said in view of Peninsular Malaysia’s prevailing electricity market supply and demand dynamics, it is anticipating the government to grant short-term PPA extensions to some power plants soon, and Malakoff is a likely beneficiary.
“This is considering the decent operational track records for the group’s GB3 and Prai power plants.
“Assuming 50% to 60% reductions from their previous rates, the extensions of GB3 or Prai Power’s PPAs, if materialised, may add RM92mil to RM115mil and RM62mil to RM78mil of capacity income to Malakoff, respectively,” Affin Hwang predicted.
Additionally, the brokerage is of the view that the group’s established operational track record, technical expertise and financial capabilities should put it in a strong position to tender for one to two new CCGT plants when the opportunities arise.
On top of that, the securities firm also pointed out that Malakoff has the technical expertise and funding capability to finance, design, build and operate a new CCGT plant, given its position as Peninsular Malaysia’s largest IPP.
Affin Hwang foresees a strong pipeline of new CCGT tenders and given the limited numbers of established IPPs in Malaysia and believes Malakoff is in a strong position to bag one or two new CCGT projects.
Reiterating its “buy” call on the counter, the research unit is raising Malakoff’s twelve-month target price to RM1.10 from 90 sen, after incorporating the potential value accretion from one new CCGT plant.
Affin Hwang emphasised its opinion that while the government has yet to call for new CCGT plants, it believes the move is inevitable and Malakoff has the competitive edge to bag one to two new CCGT plants.
