KUALA LUMPUR (May 5): Public Investment Bank Bhd initiated coverage on electricity-generation entity Malakoff Corp Bhd with an “outperform” rating and a target price (TP) of RM2.18.

In a note today, Public Investment said the TP of RM2.18 was derived using discounted cash flow (DCF) valuation.

“At our fair value, it translates to financial year ending Dec 31, 2016 (FY16) price-earnings (PE) of 15.3 times and enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) of 7.5 times.

“The group’s business model is based on contractual operating framework whereby it will receive capacity payments irrespective of whether any electricity is generated by its power plants pursuant to its PPAs,” Public Investment said.

Public Investment said Malakoff had a reliable cash flow business model, supported by long-term power purchase agreement (PPA).

The research house said it likes Malakoff's independent power producer business model as it provided the group with sustainable and consistent income throughout the concession period.

“In addition, the weighted average remaining PPA period of about 13 years would translate into secured income to the group for more than a decade going forward.” Public Investment said.

Malakoff's IPO involves the sale of 1.52 billion existing and new shares at RM1.80 each. The exercise comprises 521.74 million existing shares under the offer for sale portion while the public issue involves one billion new shares.

Malakoff is scheduled to be listed on Bursa Malaysia this May 15.