Whisk the flour, malted milk powder and baking powder in a medium bowl. Beat the butter and granulated sugar in a large bowl with a mixer on medium-high speed until light and fluffy, 3 to 5 minutes. Add the egg and vanilla and beat until incorporated. Reduce the mixer speed to low; add the flour mixture in 2 batches and beat until just incorporated. Divide the dough between 2 sheets of plastic wrap; shape each into a disk. Wrap and refrigerate until firm, 1 hour or overnight.
Position racks in the upper and lower thirds of the oven; preheat to 350 degrees F. Line 2 baking sheets with parchment paper. Working with 1 disk at a time, roll out the dough on a floured surface until 1/4 inch thick. Cut out cookies with 2- to 3-inch cookie cutters; arrange about 1 inch apart on the prepared baking sheets. Reroll the scraps once and cut out more cookies. Freeze until firm, 5 to 10 minutes.
Bake, switching the pans halfway through, until the cookies are golden around the edges, 12 to 15 minutes. Let cool 5 minutes on the baking sheets, then transfer to racks to cool completely.
Make the royal icing: Whisk the confectioners' sugar and meringue powder in a large bowl. Add 5 tablespoons water; beat with a mixer on medium-high speed until soft glossy peaks form, adding up to 1 more tablespoon water if necessary. Tint as desired with food coloring. Spread or pipe on the cookies. Sprinkle with sanding sugar. Let set, 1 hour. Go to page 242 for decorating tips.