This article first appeared in The Edge Malaysia Weekly on May 23, 2022 - May 29, 2022
INDEPENDENT power producer Malakoff Corp Bhd is understood to have won a contract for the development of a waste-to-energy (WTE) plant in Sungai Udang, Melaka, according to someone with knowledge of the matter. The project was put out to tender by the Ministry of Housing and Local Government (KPKT) in February 2021.
The win could give a boost to the group’s ambition to develop its renewable energy (RE) business and reduce its dependence on fossil fuel-driven power plants.
“Malakoff has in principle secured the contract, but it hasn’t been awarded by KPKT yet. It should be announced soon because we are already working to build the boiler that will be needed in the WTE plant,” says the person.
When contacted, a Malakoff spokesman says, “We are awaiting the official announcement on the outcome of the bids by the relevant authorities.”
It is not known how big the plant will be. In 2019, the then chief minister of Melaka Adly Zahari told the media that the WTE plant — slated to be the second such facility in the country after the Ladang Tanah Merah plant in Negeri Sembilan — would cost about RM280 million.
This could mean the Sungai Udang plant could be similar in size and electricity generation capacity as the Ladang Tanah Merah plant — owned by Cypark Resources Bhd that cost RM300 million to develop — which can generate 25mw.
According to media reports, Melaka produces 1,300 tonnes of solid municipal waste a day, all of which goes to the Sungai Udang landfill. The state government is said to spend about RM70,000 a day to dispose of it.
While details of the WTE plant are scarce, a WTE plant developer would earn tipping fees from the handling and processing of solid waste and from selling the electricity generated by the plant.
Malakoff has big ambitions when it comes to RE. In 2018, it took up its first RE asset operation and maintenance job — a 21-year contract it had secured with consortium partner Zelleco Engineering Sdn Bhd from ZEC Solar Sdn Bhd, which had been awarded a Large Scale Solar (LSS) power plant project in Kota Tinggi, Johor.
In 2020, Malakoff acquired a 71ha parcel in Melaka for RM150 million for future RE projects. The group has set long-term strategic targets of achieving 10,000mw of power generation capacity, of which 1,400mw will be from renewable sources. It currently has a power generation capacity of 6,424mw, of which only 40mw is from renewable sources.
Malakoff has also submitted a tender for a WTE plant in Johor. Other such projects that may be put out to tender this year include one each in Pahang, Terengganu and Kedah, as the federal government aims to have at least one WTE plant in each state.
Malakoff is in need of new sources of revenue, as it will soon lose income from two power plants.
The power purchase agreement (PPA) for its 75%-owned GB3 power plant in Lumut, Perak, is set to expire by the end of this year. The plant’s generation capacity of 640mw accounts for 10.7% of the group’s capacity payments.
The PPA for its power plant in Prai, Penang, is set to expire in June 2024. The plant, which has a generation capacity of 350mw, accounts for about 7% of the group’s capacity payments.
Malakoff has been aggressively pursuing contracts to install and manage rooftop solar projects. In October 2021, the group signed a solar PPA with UMW Kayaba for a rooftop solar project with a capacity of 1.25mwp.
Two months later, on Dec 15, 2021, it received a letter of award from Keretapi Tanah Melayu Bhd/Railway Asset Corp for rooftop solar projects. The group has so far secured rooftop solar projects with a total capacity of 24.8mwp.
Apart from operating and maintaining power plants, Malakoff also has water production facilities, especially in the Middle East, as well as a solid waste management business through its subsidiary Alam Flora Sdn Bhd, which manages 4,145 tonnes of solid waste a day.
Malakoff’s net earnings for its financial year ended Dec 31, 2021 (FY2021) fell 11.2% year on year to RM254.55 million. This was despite revenue being 28.4% higher at RM1.94 billion, owing to a write-off for Segari Energy Ventures Sdn Bhd’s deferred expenses and lower contribution from Tanjung Bin Energy Sdn Bhd (TBE) as a result of lower capacity payments and impairment of assets caused by plant outages.
The lower y-o-y earnings were also due to the amount recorded in 2020 from TBE’s settlement agreement with Alstom Power System and GE Power Services (Malaysia) Sdn Bhd for losses and damages incurred in relation to failure events that occurred between April 2017 and June 2019.
Malakoff saw its share price skid to almost an all-time low of 55.5 sen before closing at 56.5 sen on March 8. Last Thursday, its shares were trading at 64 sen apiece, valuing the group at RM3.2 billion. The counter, currently down more than 10% year to date, had a trailing 12-month price-earnings ratio of 12.57 times.
In an April 25 report, AmInvestment Bank analyst Gan Huey Ling upgraded Malakoff to a “buy” from “hold”, but cut its fair value to 79 sen from 90 sen, pointing to lower earnings from the TBE power plant as a result of forced outages.
“We are upgrading Malakoff as we believe the 11.9% fall in its share price already reflects the operational risks of the TBE power plant. TBE experienced forced outages from Nov 3, 2021, to Feb 13, 2022, due to damage in the blades of the turbine. We forecast Malakoff’s core net profit (excluding impairment losses on financial instruments) to improve by 1.5% to RM280.7 million in FY2022F on the back of fewer forced outages and lower provisions and write-offs of assets,” she wrote.
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