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Author: PublicInvest   |   Latest post: Wed, 11 Dec 2019, 9:46 AM

 

Mega First Corporation - Shifting Into Commercial Operation

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After taking nearly 4 years, Mega First’s Don Sahong Hydropower project in Laos has finally been completed. According to an official statement from the Chinese contractor, Sinohydro dated two days ago, all turbines have now entered commercial operation after the successful trial of the fourth turbine. The USD401m project was completed 48 days ahead of schedule. We laud the strong efforts from all parties given the earlier-than-expected completion period as well as prudent management in bringing down the project cost. Maintain Outperform call with an unchanged TP of RM5.71.

  • Share price inching closer to its full value. Stripping out all other businesses, the Don Sahong Hydropower project is valued at an estimated TP of RM4.95/share, accounting for 87% of our SOP-based target price (refer to Figure 2). We believe upon receiving the first payment (to take about 3 months from now) from the electricity sales, the share price should re-rate closer to our SOP-based target price as it clears lingering uncertainties over payment issues.
  • Time to reap gains for warrant holders. The total warrants outstanding are about 40.2m, with an exercise price of RM2.22. As the plant approaches its commercial operation date scheduled on 1st Jan 2020, in-the-money warrant holders should contemplate converting their existing holdings before expiry on 08 April 2020. Based on our estimates, we see a potential DPS of at least 30sen based on 40% payout from the Group’s free cash flow, just reward for all long-term shareholders of the company.
  • Monetising Serudong Power S/B’s assets. To recap, the 51%-owned subsidiary, Serudong Power S/B, which ran a 36MW diesel-fuelled power plant in Tawau, had ceased operations following the expiry of the concession on 2 Dec 2017. MFCB’s management has agreed to sell the power plant and structures together with all the facilities, equipment, plant and machineries at a total consideration of RM3m. A total provision of RM16.6m was incurred in 2018 to cover all costs associated with the dismantling of the power plant. Upon completion of the asset sale, the entire provision will no longer be necessary and will be reversed into Serudong’s profit and loss position. This will collectively contribute an estimated gain of RM9.6m or EPS of 2.43sen to MFCB’s results based on its 51% shareholdings (RM3m pre-tax gain on disposal + RM16.65m reversal of provision.

Source: PublicInvest Research - 14 Nov 2019

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