Investment Highlights

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

• Here are the key takeaways from MFCB’s analyst briefing last Friday: -
  ➢ Don Sahong Hydropower Plant (DSHP) is expected to achieve an EAF (equivalent availability factor) of 91% in FY23E vs. 94.6% in FY22. DSHP’s EAF is envisaged to be lower in FY23E as water levels dropped and maintenance works were carried out in 2Q.
  ➢ In spite of this, we forecast DSHP’s EBIT to grow by 5% to RM460.7mil in FY23E, underpinned by currency gains and a 1% tariff hike in October 2023. DSHP’s functional currency is USD.
  ➢ There are 2 earnings drivers in FY24F. Firstly, as MFCB has raised its effective stake in DSHP to 91.3% from 80%, DSHP’s earnings contribution is expected to increase by 5%. Secondly, the completion of the 5th turbine at DSHP in 3QFY24 is expected to boost net profit by another 2%. DSHP is about 75% completed.
  ➢ EBIT of the resources division is anticipated to improve in 4QFY23. In 3QFY23, sales volume was affected as a key export customer was carrying out plant maintenance. We estimate the division’s EBIT to grow by 38% to RM25mil in FY23E on the back of improved sales mix and currency gains.
  ➢ Edenor Technology’s (oleochemical joint venture) operations are expected to stabilise further in 4QFY23. Hence, the share of losses are envisaged to decline in 4QFY23 from RM4.5mil in 3QFY23. We forecast MFCB’s share of net loss in Edenor at RM10mil in FY23E.

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

Source: AmInvest Research - 4 Dec 2023