PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 17 Jan 2020, 9:48 AM


Mega First Corporation - In The Final Stages

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Mega First (MFCB) registered a core net profit of RM31.5m (-6% YoY) for 1QFY19 after stripping out foreign exchange gain amounting to RM2.1m. The results are above expectations, making up 34% and 32% of our and consensus full-year estimates respectively. Construction of the Laos power plant saw a further 8.3% (vs 8.2% in 1QFY18) completed during the quarter, meanwhile, bringing cumulative physical completion to 87.3% as of March-FY19 (vs 54.7% in 1QFY18). No dividend was declared for the quarter. We fine-tune our numbers, which sees a slight increase of 2% in our FY19 earnings. It is worth noting that we have not factored in the one-off electricity earnings contribution over the wet testing period that is expected to come in the late-3Q2019 as information remains sketchy for now. We also raise our SOP-based TP from RM4.74 to RM5.04 after rolling over our valuations to FY20.

  • 1QFY19 revenue (QoQ: +0.4%, YoY: +3.1%). The group’s overall revenue was slightly higher at RM221.8m. Power segment, which is solely derived from construction-related revenue in the Don Sahong hydropower project in Laos, saw an increase of 5.5% to RM169.9m, underpinned by higher physical progress in the project as well as a 4.2% strengthening of the US Dollar against the Malaysian Ringgit. Revenue in the resources segment fell 11.7% YoY to RM32.8m however, affected by a 15.1% decline in sales volume, though partially mitigated by a 2.3% increase in average selling price which was attributed to a 4.2% rise of the US Dollar against the Malaysian Ringgit. Weaker sales volume of lime products were mainly dragged by lower industrial output by existing customers especially in the steel and constructor sectors. Property sales remained steady at RM2.1m on the back of solid rental income from PJ8 and its Greentown carpark.
  • 1QFY19 core net profit (QoQ: -2.2%, YoY: -6%). In contrast to the revenue growth, the Group’s core profit fell 6% YoY to RM31.5m after stripping out the foreign exchange translation gain of RM2.1m. The weaker results were mainly due to a steep decline in resources segment, down 50% YoY to RM3.4m. Resources pre-tax earnings margin dropped from 18.3% to 10.3% as a result of lower capacity utilization rate and higher depreciation cost following the completion of Kiln 8. On the other hand, construction profit from the power segment improved by 5.6% YoY to RM45m while property pre-tax earnings improved slightly to RM1.2m.
  • Expecting generous dividend payout. Upon the completion of Don Sahong Hydropower project, we see strong free cash flows of not less than RM300m annually. Assuming a conservative dividend payout of 50%, we expect to see dividend per share of 30sen per annum for the next 25 years, which translates to an attractive dividend yield of 8.8% for passive investors. As management has plans for more renewable energy projects in the region, we see huge opportunities for higher dividend payout in the future. There will be even more cost savings as management also plans to repay its USD150m loan within the first 3 years upon commencement of the Don Sahong Hydropower plant.

Source: PublicInvest Research - 30 May 2019

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