Malakoff Corporation has demonstrated a robust recovery in its earnings and cashflows, largely driven by improved plant performance and stable coal prices. Analysts have responded positively, with recommendations reflecting the company's promising outlook. Despite a 45% increase in its share price year-to-date, Malakoff's valuation remains modest, trading at just 4x the 2025F EV/EBITDA. The recommendation is to ADD, with a revised DCF-based target price of RM1.30 as cited by CGS International Stock Broking House.

The turnaround in Malakoff's quarterly core profit after a period of significant losses marks a substantial operational improvement. From an average loss of RM166 million between the first and third quarters of 2023, the company has shifted to a profit of RM72 million in the fourth quarter of 2023 through to the second quarter of 2024. This recovery is attributed to a more normalised coal price environment, improved plant performance, and higher capacity factors driven by increasing power demand, which has contributed to better revenues and margins.

The surge in power demand across Peninsular Malaysia, with growth rates of 3.2-9.6% year-on-year from the second quarter of 2023 to the second quarter of 2024, presents new opportunities for Malakoff. This growth surpasses the historical average CAGR of 1.2% observed from 2017 to 2022. The company is well-positioned to capitalise on this trend, with expectations of new capacity awards as existing plants face retirements and new investments in gas plants become necessary. Malakoff is already in advanced discussions regarding two new gas plants, potentially adding 2.8GW to its portfolio, with one planned for Kedah and another possibly in Port Dickson.

In response to these developments, CGS' forecasts for Malakoff's 2024F-2025F PAT have been raised by 15-17%, reflecting the improved performance and growth prospects. Additionally, the projections now incorporate the potential addition of a new 1.4GW gas plant and a new 84MW hydro plant in Kelantan, expected to start up in 2026. This adjustment has led to an increase in the DCF-based target price to RM1.30.

Despite the strong share price performance this year, Malakoff's valuations remain attractive, positioned at the lower end of its historical range with a 4.1x 2024F EV/EBITDA. This suggests that, even with improved earnings, the stock is still undervalued compared to historical averages. The company is anticipated to resume dividend payments as its free cash flow generation strengthens, following the normalisation of its earnings.