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Author: kltrader   |   Latest post: Wed, 26 Feb 2020, 5:42 PM

 

Mega First Corp. Bhd - Within Expectations

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Maintain BUY

FY18 core earnings were within ours/consensus expectations with continued progress at Don Sahong which has reached a cumulative completion of 79% as of end-Dec 2018, on track for completion by end- 2019. There is potential upside to our forecasts during the testing period expected from 2H19 onwards. Our SOP-TP is raised by 10% to MYR4.60 (rounded) after rolling forward our valuation base year for Don Sahong.

Don Sahong 79% completed

4Q18 core net profit of MYR28m (-13% YoY, -11% QoQ) brought FY18 core net profit to MYR130m (+9% YoY), within ours/consensus full year forecasts at 97%/100%. Our core net profit calculation for FY18 excludes a forex gain of MYR2m and a fair value gain of MYR7.4m. The YoY/QoQ lower core net profit in 4Q18 was largely caused by a higher tax expense incurred within the quarter (+49% YoY, +76% QoQ). For FY18, Don Sahong achieved a cumulative physical completion of 79% (+32.5% in FY18), on track for completion by end-2019. Dry testing of the first turbine is expected to start in 2Q19, while wet test will commence in 3Q19.

Resource margins remain weak

Despite the higher sales of lime products (+23% YoY) in FY18, the resource division reported a flattish PBT of MYR18.6m (-4% YoY) as a result of weaker PBT margins (-3ppts YoY). Moving into FY19E, margins are likely to remain weak as a result of the higher transportation, packaging and fuel costs and strengthening of MYR against USD.

Earnings unchanged

Our earnings forecasts for FY19E/FY20E are relatively unchanged after i) lowering our margin assumptions for the resource division by 3ppts for both years but ii) marginally increasing our USDMYR assumption for Don Sahong from FY20E onwards to 4.00 (from 3.90). We are projecting earnings to decline in FY19E as a result of lower works recognition as Don Sahong closes in on completion. However, there is potential upside to our FY19E numbers having not yet imputed any contribution from the sale of electricity produced during the testing period in 2H19.

Source: Maybank Research - 27 Feb 2019

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Labels: MFCB

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MFCB 5.30 -0.13 (2.39%) 497,900 

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