Investment Highlights

• We maintain BUY on Mega First Corporation (MFCB) with an unchanged fair value of RM5.40/share, based on a FY25F PE of 10x, which is the average for the power sector. We ascribe a neutral 3-star ESG rating to MFCB.

• MFCB’s core results were within our expectations and consensus. We expect MFCB’s net profit to improve going forward on the back of higher water levels, absence of maintenance expenses and commissioning of the 5th turbine at DSHP (Don Sahong Hydropower Plant) in 2HFY24. Maintenance works at DSHP are usually carried out in March or April.

• MFCB’s net profit rose by 35.3% YoY to RM95.5mil in 1QFY24 due to a RM22.4mil insurance claim. Excluding this, MFCB’s core net profit would have risen by 3.6% to RM73.1mil in 1HFY24 as healthy performances from the renewable energy (RE) and resources divisions were offset by a share of loss of RM13.9mil in the Edenor oleochemical joint venture.

• Edenor experienced capacity loss in 1QFY24 as the plant was shut down for maintenance, repairs and upgrading works. In its results announcement, MFCB said that Edenor’s management is optimistic that earnings would recover in 2HFY24, supported by improvements in market conditions.

• EBIT of the RE division expanded by 7% to RM101.2mil in 1QFY24 from RM94.6mil in 1QFY23, underpinned by currency gains of 7.6% and a 1% tariff hike. DSHP’s EAF (equivalent availability factor) slid to 79.3% in 1QFY24 from 81.9% in 1QFY23 as water levels dropped. EBIT margin of the RE division was flat at 73.5% in 1QFY24.

• EBIT of the resources division more than doubled to RM14.6mil in 1QFY24 supported by a strong USD and delayed deliveries from the previous quarter. We believe that overseas customers account for two-thirds of the division’s revenue. EBIT margin of the resources division rose to 23% in 1QFY24 from 10.7% in 1QFY23.

• MFCB is currently trading at a decent FY25F PE of 9x, which is below the 5-year average of 10x.

Source: AmInvest Research - 23 May 2024