Investment Highlights

• We maintain BUY on Mega First Corporation (MFCB) with an unchanged fair value of RM5.40/share, based on FY25F 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: -
  
  ➢ DSHP’s (Dons Sahong Hydropower Plant) earnings are expected to improve in the coming quarters on the back of higher water levels, absence of maintenance expenses and commissioning of the 5th turbine in 3QFY24. DSHP’s EAF (equivalent availability factor) of 92% currently (1QFY24: 79.3%) is envisaged to reach 100% before the end of June 2024.
  
  ➢ The new concession agreement and power purchase agreement (PPA) for DSHP’s 5th turbine is anticipated to be completed soon. Key parameters include tariffs, taxation rates and concession period. We reckon that the PPA would be positive for MFCB.
  
  ➢ The Edenor oleochemical joint venture is estimated to record smaller losses in 2QFY24 (1QFY24 share of loss: RM13.9mil). Recall that in 1QFY24, the plant was partly shut down for maintenance works. Edenor’s average utilisation rate was 65% in 1QFY24, which was the lowest ever.
  
  ➢ MFCB has completed the acquisition of a 64% stake in CSC Agriculture Holdings (fruits and vegetables venture) for RM25mil. Hence, MFCB will start recognising CSC’s contribution from 3QFY24 onwards. We understand that CSC’s earnings are expected to be very small as most of its farms are not mature yet.

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

Source: AmInvest Research - 31 May 2024