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Author: kltrader   |   Latest post: Mon, 20 Jan 2020, 9:29 AM


Mega First Corp. - Growth Upside Potential

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Reiterate BUY; SOTP TP raised by 15%

MFCB’s transmission line from Don Sahong to Stung Treng is expected to be completed by early Dec 2019, in time for Don Sahong’s commercial operations in Jan 2020. We raise our SOTP TP by 15% to MYR5.00 after adjusting for lower risks on completion of the line. Potential upside to our FY20-21E forecasts having imputed for more conservative efficiency rates and margins at Don Sahong against management’s guidance. Reiterate BUY on undemanding valuations of 7.8x FY20E PER (-0.5SD).

New transmission line on track for completion

To expedite the process of channelling power from Don Sahong to Cambodia, Electricite Du Laos (EDL) will port a connection from Tower 23 of MFCB’s newly-completed Don Sahong-Ban Hat transmission line (yellow line in Fig 1) straight to the Laos-Cambodia border. EDL’s “interim” transmission line (black line in Fig 1) is expected to be completed in Dec 2019. Electricite Du Cambodge (EDC) is constructing a 60km stretch on the Cambodian side. Based on the current progress, MFCB does not foresee any delays to the start of Don Sahong’s commercial operations in Jan 2020.

Bumper 4Q19 expected

Wet testing and power transmission of the project’s four turbines will begin in phases from Oct 2019. The sale of energy during wet testing could boost FY19E core net profit by up to USD8m. Given this, we expect 4Q19 to be a bumper quarter. Additionally, costs for Don Sahong at the project level could be lower than the projected USD401m, partly due the to lower-than-expected interest rates. If so, MFCB could book a one-off cumulative adjustment in 4Q19 to reflect its lower project costs.

Revising RNAV assumptions

Our earnings are unchanged pending Don Sahong’s commencement of commercial operations in Jan 2020. With Don Sahong close to completion, we lower our risk-premium and beta assumptions. We also roll forward our valuation. All in all, our SOTP TP rises by 15% to MYR5.00 (lower WACC of 8.7% from 10.4%).

Source: Maybank Research - 8 Oct 2019

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Labels: MFCB

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