Investment Highlights

• We maintain BUY on Mega First Corporation (MFCB) with an unchanged fair value of RM4.45/share, based on a FY24F PE of 10x, which is the average for the power sector. We ascribe a neutral 3-star ESG rating to MFCB.

• MFCB’s annualised 9MFY23 net profit was within our full year forecast but 8% below consensus estimates. We believe that our FY23E net profit for MFCB is conservative enough to account for an asset impairment in 4Q.

• In its results announcement, MFCB said that there will be an asset impairment of RM15.7mil in 4QFY23 as a fire had broken out in one of the packaging factories. A silver lining is that the damaged assets were fully insured. Hence, losses from the damaged assets will be fully recovered from insurance claims in FY24F.

• MFCB’s net profit fell by 13.2% YoY to RM261.7mil in 9MFY23, dragged by a tax provision and penalty amounting to RM26.3mil and losses at the oleochemical joint venture.

• Operationally, MFCB’s core units sustained their earnings in 9MFY23. EBIT of the RE division expanded by 5.7% YoY to RM336mil in 9MFY23 on the back of a stronger USD and tariff hike in October 2022. These compensated for a lower EAF (equivalent availability factor) at DSHP (Don Sahong Hydropower Plant). DSHP’s EAF declined to 89.4% in 9MFY23 from 93.7% in 9MFY22 as water levels dropped in 2Q.

• Comparing 3QFY23 against 2QFY23, the RE division’s EBIT rose by 16.8% to RM130.1mil. DSHP’s EAF rose to 97.6% in 3QFY23 from 88.7% in 2QFY23 as water levels improved.

• Resources EBIT climbed by 22.7% YoY to RM17.7mil in 9MFY23, underpinned by a better product mix and currency gains. EBIT margin inched up to 11.3% in 9MFY23 from 9.2% in 9MFY22.

• Packaging EBIT was relatively flat at RM31.1mil in 9MFY23. Although revenue improved by 0.6% YoY to RM302mil in 9MFY23, this was offset by higher costs of labour and electricity.

• MFCB is currently trading at a FY24F PE of 8x, which is lower than the 5-year average of 10x.

Source: AmInvest Research - 30 Nov 2023