Malakoff's performance set to improve in second half after first-half setbacks

Malakoff Corp Bhd's financial performance is projected to rebound in the latter half of the year, following a challenging first half that saw its results hampered by equipment malfunctions and an elevated effective tax rate. The company's earnings for the six months ended June 30 fell short of full-year projections, though they met consensus estimates.

The primary factor affecting Malakoff's profitability was the failure of a steam generator turbine rotor at its 2,100-megawatt coal-fired power plant in Johor, operated by Tanjung Bin Power (TBP). This incident led to a significant 19% decrease in the group's revenue compared to the same period last year. While second-quarter profits remained flat compared to the previous quarter, revenue saw a quarter-on-quarter increase of 39%, attributed to improved fuel margins at both Tanjung Bin Energy (TBE) and TBP.

Adding to the financial strain, Malakoff experienced a high effective tax rate (ETR) of 51% in the second quarter, pushing the average ETR for the first half to 40%, a substantial increase from 21% in the prior year. This higher tax burden was due to non-deductible expenses.

Despite these setbacks, RHB Research anticipates an improvement in the second half, with TBP's earnings expected to rise once the generator rotor is operational again this month. Additionally, a conveyor belt at the Tanjung Bin jetty has resumed operations after site cleanup. RHB Research has maintained its 'buy' recommendation for Malakoff shares, setting a target price of RM1.06, while CIMB Securities has slightly lowered its earnings forecasts but also maintains a positive outlook, citing potential upside from new solar power projects.