KUALA LUMPUR: Malakoff Corp Bhd's subsidiary Alam Flora's plan to build a port recovery facility in Port Klang is a positive despite the absence of earnings accretion in the near term.

       According to Kenanga Research, the facility, which will take 3.5 years to complete, should help to broaden the environmental management company's earnings base due to more business volume.

       Alam Flora, which joined Malakoff group in early 2020, has produced consistent earnings with a net profit of RM64.6mil in FY20, which helped to fill up group earnings gap and stabilised forward earnings.

       "Although group’s net gearing was high at 1.85x in FY20, we are not overly concerned given its concession-backed assets.

       "We have projected FY21E net gearing of 1.61x, and with this new project the group’s FY21E net gearing would rise slightly to 1.62x which we believe is not too stretched," said Kenanga.

       The research house maintained its earnings estimates given the time of completion for the project while the near-term financing cost impact should be minimal.

       "In all, we expect a better FY21 as FY20 was hit by forced outages in 2HFY20 and this should make its dividend yield of >5% sustainable," it said.

       It kept "outperform" with an unchanged target price of RM1.05, representing a 20% holding company discount to its sum-of-parts valuation of RM1.31.