KUALA LUMPUR (Jan 21): Malakoff Corporation Bhd (KL:MALAKOF) will likely see a weaker fourth quarter, as fuel margin losses from falling coal prices may prompt the power company to book higher provisions, said AmInvestment Bank.

Provisions for net realisable value of coal totalling RM20 million recorded in the third quarter ended Sept 30, 2024 may not be sufficient, the research house flagged in a note. Further, profit in the third quarter was also inflated by an insurance claim, resulting in weaker quarter-on-quarter results, it noted.

Malakoff’s net profit in the fourth quarter is expected to be lower than that in the third quarter, AmInvestment flagged. The house kept the stock on a ‘hold’ call and its target price at 88 sen.

Newcastle coal prices — the global benchmark for coal used in power generation — slid by 21.6% to US$120 (RM537) per tonne in the fourth quarter, from a peak of US$153 per tonne, amid subdued demand and oversupply in China.

Power producers like Malakoff usually buy coal under long-term contracts, and will have to write down the value of the stockpile they maintain when market prices of coal fall sharply under the costs of their inventory.

During the third quarter, Malakoff also received RM70 million in settlement of final insurance claims on its turbine blade failure that occurred in November 2021, which helped the company to return to the black with a net profit of RM58.75 million.

Malakoff racked up a 40% gain in 2024 on Bursa Malaysia, thanks to optimism over power demand growth, even as its share price fell in the final quarter of the year.

Research houses however are now divided on whether investors should continue to buy into the stock, with seven ‘buy’, five ‘hold’ and no ‘sell’ calls. The average target price is RM1.02, according to Bloomberg, implying potential returns of a little under 10% over the next 12 months.

The consensus expects Malakoff to report a net profit of RM283.7 million for the full year of 2024, a turnaround from a net loss of RM837.2 million in 2023.