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.

• Here are the key takeaways from MFCB’s analyst briefing yesterday: -
  
  ➢ The RE division (mainly hydro earnings) is expected to perform well in FY24F, underpinned by currency gains, a 1% tariff hike in October 2023 and commissioning of the 5th turbine in 3QFY24. We forecast the division’s EBIT to improve by 6% to RM491mil in FY24F.
  
  ➢ We estimate that a MYR depreciation of 10 sen against the USD would increase the RE’s EBIT by 2%. Currently, the MYR is hovering at US$1.00:RM4.77 vs. the average of US$1.00:RM4.56 in FY23. 
  
  ➢ The 5th turbine would increase DSHP’s (Don Sahong Hydropower Plant) generating capacity by 65MW to 325MW. On an annualised basis, the 5th turbine is expected to operate at an EAF of 40%. The 5th turbine is estimated to cost US$70mil-US$75mil in total.
  
  ➢ The concession agreement for the 5th turbine between DSHP and the Laos government is envisaged to be completed by 30 June 2024.
  
  ➢ The resources division may face challenging operating conditions in FY24F. The implementation of the 2%-point hike in sales and service tax to 8% on 1 March 2024 is expected to increase logistics and production costs. MFCB’s packaging division would monitor conditions and adjust its pricing accordingly.

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

Source: AmInvest Research - 1 Mar 2024