KUALA LUMPUR (April 22): Power and water company Malakoff Corp Bhd is expected to be profitable in the first financial quarter of 2024 (1QFY2024) on better fuel margin and gains from a stake sale, said TA Securities.

Malakoff will record core profit of RM60 million to RM70 million in 1QFY2024 compared to 1QFY2023’s RM99.3 million loss and 4QFY2023's RM69.8 million profit, TA Securities said in an earnings preview. The Newcastle Coal Price Index has stabilised since June 2023, the research house noted.

The index — the global benchmark for coal used in power generation — has even turned positive in 4QFY2023, suggesting that “the worst of negative fuel margins is over”, TA Securities said. Still, “we expect the group to register mild negative fuel margins in 1QFY2024”, it said.

Analysts are largely bullish with a majority of six ‘buy’ ratings, including from TA Securities, two ‘hold’ recommendations and one ‘sell’ call, according to Bloomberg. The consensus 12-month target price is 70 sen.

The consensus forecast of Malakoff’s net profit is RM259.46 million for FY2024, RM288.54 million for FY2025 and RM321.5 million for FY2026, Bloomberg data showed. TA Securities is forecasting full-year net profit of RM370 million for FY2024.

Results to be released by the end of May will also show gains from the 49% stake acquisition in solid waste management company E-Idaman, which TA Securities expects to contribute an additional 3% to 5% to Malakoff’s bottom line for FY2024 to FY2026.

Additionally, Malakoff’s 97.3%-owned Alam Flora is expected to continue contributing stable earnings for the group, the research house noted.

However, TA Securities warned that Malakoff could be at risk from the Middle East tensions. The research house flagged Malakoff’s stakes in water desalination plants in Saudi Arabia, Oman and Bahrain, which are projected to contribute RM134 million to its profit share in  FY2024.

“With the escalating tension between Iran and Israel, Malakoff’s assets in the Middle East may be at risk if there is widening of conflict to the broader gulf region,” it added.

Shares of Malakoff, which have risen 4.76% year-to-date, were unchanged at 66 sen as of 12.30pm on Monday, giving it a market capitalisation of RM3.30 billion.

For FY2023, Malakoff recorded a net loss of RM884.36 million — the group's first annual net loss since its listing in 2015 — versus a net profit of RM255.03 million in FY2022.