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 has declared a final gross DPS of 4.3 sen, which brings total gross DPS to 8.3 sen for FY23 (FY22: 7.5 sen). We forecast a gross DPS of 8.5 sen for FY24F, which translates into a yield of 2.2%.

• MFCB’s net profit of RM383.6mil was 12% above our forecast but within consensus. MFCB exceeded our expectations due to a fair value gain of RM17mil on a put option liability and a slight effective tax rate of 0.3% in 4QFY23. MFCB’s effective tax rate was low in 4QFY23 as there was a write-back of an income tax penalty of RM9.2mil.

• MFCB’s RE division reported a larger EBIT of RM464.6mil in FY23 compared to RM438.8mil in FY22. The increase in RE earnings in FY23 was driven by currency gains and a 1% tariff hike at the Don Sahong hydropower plant (DSHP) in October 2022.

• These mitigated the impact of a low EAF (equivalent availability factor) in FY23. DSHP’s EAF declined to 91.4% in FY23 from 94.6% in FY22 as water levels dropped and maintenance works were carried out in 1Q.

• EBIT of the resources division venture improved by 14.9% to RM20.8mil in FY23 on the back of a stronger USD and better product mix. EBIT margin of the resources division inched up to 10.3% in FY23 from 8.8% in FY22.

• Packaging EBIT fell to RM14.3mil in FY23 from RM39.9mil in FY22 due to asset impairment of RM26.9mil. EBIT margin slid to 3.6% in FY23 from 10% in FY22.

• MFCB’s share of results in the Edenor joint venture swung to a loss of RM13.6mil from a positive RM17.1mil in FY22. Like other oleochemical companies, Edenor is currently suffering from low selling prices and weak demand.

• MFCB is currently trading at a decent FY24F PE of 9x, which is lower than the 5-year average of 10x.

Source: AmInvest Research - 29 Feb 2024