Mega First Corp. Bhd - 2Q19: Within Expectations

Date: 23/08/2019

Source  :  MAYBANK
Stock  :  MFCB       Price Target  :  4.35      |      Price Call  :  BUY
        Last Price  :  5.50      |      Upside/Downside  :  -1.15 (20.91%)

Maintain BUY

The decrease in 2Q19 net profit was within ours/consensus expectations as construction profit continued to taper with construction at Don Sahong nearing the end (92.1% completed as of end-Jun 2019). Resources profit remained weak YoY from lower sales volume and higher production costs from its new kiln. No change to our earnings forecasts and SOP-TP of MYR4.35. Our BUY call is premised on latent value in Don Sahong (68% of our SOP), which is on target for commercialisation in Jan 2020.

Don Sahong 92.1% completed

2Q19 core net profit of MYR21m (-43% YoY, -32% QoQ) brought 1H19 core net profit to MYR52m (-26% YoY) meeting 52% of ours/consensus FY19E. MFCB expects the new transmission line from Don Sahong in Laos to Stung Treng in Cambodia to be completed in time for Don Sahong’s commercial operation in Jan 2020. To recall, the majority of Don Sahong’s power will be sold to Cambodia due to its proximity to the LaosCambodia border (more details from our note on 17 Jul link)

Resources hit by higher depreciation

PBT for the division was lower by 11% YoY (+30% QoQ) to MR4.4m in 2Q19 as a result of higher financing and depreciation expense following the completion of its Kiln 8 in Dec 2018. The revenue increase in 2Q19 of 3% YoY (+17% QoQ) was largely due to higher ASPs arising from a stronger USDMYR exchange rate. Sales volume, however, declined by 1.7% YoY. Positively, the QoQ PBT growth was driven by higher sales volume (+15% QoQ) and improved margins (+1.2ppts QoQ) from higher exports.

Undemanding valuations

We have already factored in the decline in construction profit in 2H19 within our FY19E numbers. Potential upside from the recognition of Don Sahong’s test energy sales, which we have yet to impute, could be less pronounced if the Resources segment stays weak. Valuations remain undemanding at 7x FY20E PER, with FY20 being Don Sahong’s first year of commercial operations. Our TP implies 8x PER.

Source: Maybank Research - 26 Aug 2019

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Labels: MFCB

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