Date: 04/11/2019

Source  :  PUBLIC BANK
Stock  :  MFCB       Price Target  :  5.71      |      Price Call  :  BUY
        Last Price  :  5.28      |      Upside/Downside  :  +0.43 (8.14%)

It is pleasing to note that Mega First’s (MFCB) Don Sahong Hydropower project in Laos is almost complete pending the testing for all four turbines. Testing of the final turbine should some time next week and will be ready for operations ahead of commencement of its PPA on 1st Jan 2020 under a “take or pay” scheme. Meanwhile, MFCB’s 3QFY19 results are expected to be released on 18 Nov with expectation of smaller construction earnings recognition given the hydropower plant being at the tail-end stages. We raise our SOP-based TP to RM5.71 after removing the 10% discount attached in our valuation model with the dissipation of construction risks, as well as the lower beta attached given the plant’s completion ahead of the timeline.

  • In the midst of testing turbines. The first of four electricity turbines at the Don Sahong Hydropower plant on the Mekong river in Southern Laos’ Champasak province was tested on 11 Oct following the 4 years of construction. The test was witnessed by Laos Minister of Energy and Mines Khammany Inthirath. MFCB will test each energy generator every 10 days and, with all the generators expected to be fully tested and synchronized by end-Nov. As the new 500kv transmission line is not ready as yet to cope with the full energy generation, the group plans to run 2 full turbines and shut down the other 2 turbines during these 2 months. Based on our rough estimates, it will be able to churn about USD6m (RM25m) of electricity sales in 4QFY19 which will be recognized as per the normalized margins guided by auditors. Meanwhile, capex for the 5th turbine, which has a size of 65MW, will be around USD60m (RM246m), and is expected to be ready by 2023.
  • Transmission lines. Our checks in Cambodia have revealed that the 60km 500kv transmission line from Laos-Cambodia border to Stung Treng is almost 90% complete. The new 22km 500kv transmission line from the Ban Hat substation to Laos-Cambodia border is already done, and is awaiting streamlining of both the towers. Following the recent power purchase agreement signed between Laos and Cambodia involving 2,900MW, we believe all electricity sales from Don Sahong will be sold to Cambodia due to its close proximity to the country. It also allays fears of not being able to monetize its electricity production, which could have led to payment issues for MFCB.
  • Eyeing solar projects. MFCB and Pekat Teknologi S/B have recently established a 55: 45 joint venture called MFP Solar S/B to undertake solar projects up to 10MW in Malaysia, which is believed to give far better investment returns of 10%-12%. MFP Solar S/B will be the engineering, procurement and construction and commissioning (EPCC) contractor to undertake the installation of solar power projects on the rooftop of industrial and commercial buildings under various models, namely, Build-Operate Transfer (BOT), outright sale or leasing. MFCB will ride on Pekat Teknologi’s vast experience in the solar industry. For a start, the JV intends to tap on multi-national companies for opportunities.

Source: PublicInvest Research - 4 Nov 2019

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Labels: MFCB

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MFCB 5.28 -0.01 (0.19%) 205,100 

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