PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 5 Aug 2020, 11:25 AM


Mega First Corporation- Not Resting On Laurels

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During a recent meeting with Mega First, management shared their views on the Group’s growth plans, with focus mainly on the renewable energy and packaging businesses. A series of growth initiatives are being lined-up and will keep the company busy for the next few years. Meanwhile, our channel checks reveal that water level at the Mekong River has risen substantially from 2m a month ago to the current level of 3.2m and it is expected to go up further until it peaks around the Aug-Sept period. The plant’s capacity factor is expected to hit above 90% for the 2H compared to 1H’s 77%. We raise our FY20-22 earnings forecasts by 6%-8% on the back stronger-than-expected utilization levels for the power segment, and a strong recovery for its resources-based earnings in FY21-22. Maintain Outperform call with a higher TP of RM7.76.

  • Allocating bigger capex for packaging expansion. Management has ambitious plans to grow its 60%-owned packaging business under the Hexachase Group. RM30m will be spent on a new factory in Melaka for the tripling of its paper packaging capacity as management is positive on the outlook given the increasing global environmental concerns. Besides catering to local and Australian markets, it plans to break into the US market in the near-term. The global market for the paper packaging is worth more than USD500bn today.
  • Fifth turbine in the works. Management also guided that it has secured approval from the Laos government for the fifth turbine. Construction is expected to fully kick start soon and is to be completed in the next 3 years. The 65MW turbine, which will cost about 10% more at USD50m, will only be operational during wet periods and scheduled maintenance periods for the other turbines. Hence, the capacity factor will be significantly lower (<40%). Similar to its existing hydropower project, the additional turbine will be under “take or pay” scheme.
  • Roof top solar panel the next way to go. Management has set its sights on solar power, as it foresees a declining trend for battery storage costs. It plans to participate through Large Scale Solar 4 (LSS4) and rooftop solar power installation projects. For rooftop solar power installation projects, it targets to secure at least total installed capacity of 10-20MW every year in Malaysia and Cambodia under the build-operate-transfer business model with an expected IRR of at least 10%. Cambodia will see a greater return given the more attractive tariff rates there. Meanwhile, it is in the midst of securing at least 5 solar power projects this year with an estimated electricity production yield of 15%-17%. The projects will be under a net energy metering system. Panel costs have dropped by about 30% from USD25sen/kWh last year to USD18sen/kWh or USD500K/MW, and is expected to see further declines in the next 2 years.
  • Exploring another renewable energy project in Laos. Following the successful run of its Don Sahong hydropower project, management has been actively looking for various renewable energy projects in Laos as it plans to continue growing its power business. It will only focus on solar power and hydropower projects in Laos. Banking on its stronger cash flow and vast experience in various power businesses coupled with declining battery storage and financing costs, we think it is an opportune time for the Group to expand its footprint in Laos.

Source: PublicInvest Research - 13 Jul 2020

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