Malakoff Corporation has secured a one-year extension for its Prai power plant operations, effective from 1 September 2024 to 31 August 2025. The company signed a power purchase agreement (PPA) with Tenaga Nasional Berhad, with an option for an additional one-year extension, subject to system requirements. This move follows a restricted tender process initiated by the Energy Commission (EC) in April 2024 to extend capacity from expired or expiring generators. Malakoff's 350MW gas-fired Prai plant, which previously had a 21-year PPA that expired in June 2024, was among the successful bidders alongside Edra Energy's 710MW capacity.

CGS in its review said the current outlook remains optimistic, and Malakoff is reiterated as an ADD stock.

Despite the lack of specific details on the new PPA's tariff or capacity payments, estimates suggest that the extension could add RM15 million to RM20 million to Malakoff's earnings, representing a 6-8% increase in the group's current FY25 forecast. This estimate assumes a 75-80% reduction in capacity payments from the approximately RM156 million earned annually before the initial PPA expired. The asset's depreciation and debt repayment during the initial term likely contributed to the reduced payment structure. Further details are expected following the management's 2Q24 results briefing on Thursday.

Malakoff is also advancing several new power projects, including a 1.4GW gas plant in Kedah, a 22MW waste-to-energy plant in Melaka, and a 500MW solar capacity through the LSS5 solar capacity tenders, along with an 84MW mini-hydro plant under development. These projects are not yet factored into the company's target price (TP).

In light of a recent 12% drop in Malakoff's share price following a 30% rally since June 2024, this pullback is seen as a favourable opportunity for accumulation. The company's potential re-rating could be driven by forthcoming announcements on project final investment decisions (FIDs), repowering of existing assets, and a recovery in dividends in 2024.