Mega First posted core earnings of RM248m (YoY: +7.9%) for 9MFY21, making up 70% and 72% of our and consensus full-year expectations respectively. The results, which were broadly in line with full-year expectations, were boosted by both renewable energy and packaging segments despite weaker performance from the resources segment. On a positive note, energy availability factor for the Don Sahong hydropower plant for 9MFY21 rose from 83.3% to 88.9% on the back of improved water flow management system due to favourable weather conditions. Meanwhile, the long-awaited construction of the 5th turbine will kick start next month and is expected to be completed by 3Q 2024. No dividend was declared for the quarter. Maintain Outperform call with an unchanged TP of RM4.36.

• 3QFY21 revenue (QoQ: +11.9%, YoY: +10.1%). The Group’s revenue rose 10.1% YoY to RM233m, boosted by a 2-fold jump in packaging sales despite weaker renewable energy (YoY: -2%) and resources (YoY: -23.4%) sales. The weaker renewable energy sales were dragged by the lower average energy availability factor for Don Sahong hydropower plant at 90.1% (vs 3QFY20: 92.5%) due to a longer period of annual scheduled maintenance. Solar energy sales surged from RM0.1m to RM1.4m following the commissioning of an additional 13.1MW rooftop solar projects during the quarter (vs 3QFY20: 1.48MW).
  Meanwhile, resources sales fell 23.3% YoY to RM31.5m, due to a 40.4% contraction in export sales of lime products, affected by the maintenance shut down by a key customer and steep increases in freight rates which also eroded its price competitiveness in certain key export markets. Revenue contribution from other products was flat at RM3.6m. The average selling price of lime products was 3.4% higher due mainly to upward price adjustments in response to higher input costs.
  Packaging sales doubled to RM63.4m, bolstered by the consolidation of 2- month sales from newly acquired upstream packaging company, Stenta. Excluding the maiden sales contribution from Stenta, Hexachase Group’s revenue would have registered only single-digit growth rate as demand was affected by Covid-related plant shutdowns.

• Slight decline in 3QFY21 core earnings. All core segments except packaging contributed to the marginally weaker core earnings of RM88m. The renewable energy segment, which contributed almost 91% of the Group’s bottomline, saw its pre-tax profit fall by 3.4% YoY to RM98.8m. The hydropower energy business commanded an incredible pre-tax margin of 73.3%. Resources earnings tumbled 71% YoY to RM2m on higher unit overhead costs due to lower plant utilization and significantly higher fuel, freight and packaging costs. Packaging earnings doubled to RM7.5m, bolstered by Stenta’s maiden contribution. Excluding the earnings contribution from Stenta, earnings of Hexachase would have dropped 28.3% to RM2.5m due to a sharp increase in raw material costs.

Source: PublicInvest Research - 19 Nov 2021