Highlights

Mega First Corporation - Waiting for Energy Test

Date: 23/08/2019

Source  :  PUBLIC BANK
Stock  :  MFCB       Price Target  :  5.04      |      Price Call  :  BUY
        Last Price  :  5.29      |      Upside/Downside  :  -0.25 (4.73%)
 


Mega First (MFCB) registered a lower core net profit of RM54.1m (-23.9% YoY) for the 1HFY19 due to smaller construction earnings contribution from the Don Sahong Hydropower project in Laos as works approach completion by year end. Nevertheless, the results were in line with our and market expectations, making up 55% and 54% of full-year estimates respectively. Construction of the Laos power plant saw a further 4.8% (vs 8.3% in 2QFY18) completed during the quarter, bringing cumulative physical completion to 92.1% as of June-FY19 (vs 63% in 2QFY18). Despite a decline in construction profit this year, it is worth noting there will be a one-off gain from the sale of test energy, which is expected to kick start before the end of Sept 2019. We have not yet factored in the earnings contribution coming from the test energy sale. On a more cheerful note, management is planning to add a 5th turbine to the project. No dividend was declared for the quarter. Maintain Outperform call with an unchanged TP of RM5.04.

  • 2QFY19 revenue (QoQ: -28.3%, YoY: -27.4%). The group’s overall revenue fell 27.4% YoY to RM159m. The power segment, which is solely derived from construction-related revenue in the Don Sahong hydropower project in Laos, saw a decline of 38.9% to RM100.1m, underpinned by lower physical progress in the project. Revenue in the resources segment rose 3.1% YoY to RM38.2m, led by a 2.5% increase in sales of lime products to RM34.6m while contribution from other products was flat. The stronger lime product sales were mainly driven by a 4.3% increase in average selling price owing to a 4.6% rise in the US dollar, which was also partly offset by a 1.7% decline in sales volume as industrial output of existing customers weakened. Sales from the property segment were slightly lower to RM2m due to lower rental following the departure of one tenant from its PJ8 building.
  • 2QFY19 core net profit (QoQ: -29.8%, YoY: -41.8%). Dragged by weaker earnings contribution from all three segments, the Group’s core profit tumbled 41.8% YoY to RM22.1m after stripping out foreign exchange translation gains of RM0.6m. Recognition of construction earnings from the power segment fell 38.5% YoY to RM26.9m. Earnings from resources segment fell 11% YoY to RM4.4m on higher financing costs and lower plant utilization following the completion of Kiln 8 in Dec 2018. Lastly, property earnings also weakened, down 30.8% YoY to RM1.2m, due to the absence of property sale income, recognition of building refurbishment cost and marginally lower rental income.
  • More potential earnings in the pipeline. With the commencement of the energy test sale, we estimate additional earnings contribution of USD5m- 10m (RM20m-40m) to our FY19 earnings forecasts. The bumper rise in earnings will likely come in the final quarter. Meanwhile, the proposal of adding a 5th turbine could potentially increase our FY22 earnings forecast by 20%-25%. More earnings upside is on the way if management successfully wins a bid for the 100MW solar power project under Malaysia’s latest Large Scale Solar 3 (LSS3) open tender scheme.

Source: PublicInvest Research - 23 Aug 2019

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