Mega First reported core earnings of RM386m (YoY: +14%) for FY22, accounting for 101% and 100% of our and consensus full-year expectations, respectively. The solid results were mainly attributed to all core segments. Energy availability factor (EAF) for the Don Sahong hydropower plant remained at 97.4% in 4QFY22, bringing the 2022 average EAF to a record level of 94.6% (2021: 91%). A higher DPS of 3.85sen was declared for the final quarter, bringing the full-year DPS to 7.45sen (FY21: 6.75sen). Maintain Outperform call with an unchanged SOP-based TP of RM4.74.

• 4QFY22 revenue (QoQ: -2%, YoY: +30%). During the quarter, the Group’s revenue rose 30% YoY to RM364m, boosted by stronger sales contributions from all core businesses. Stronger renewable energy sales (YoY: +10%) were led by a 10% increase in hydro energy sales in Laos to RM160m while solar energy sales rose 14% YoY to RM1.6m, supported by 17.8 MW of solar projects in Malaysia and Cambodia. Stronger hydro energy sales were boosted by i) a steady EAF of 97.4%, ii) a 9.2% appreciation of the US Dollar against Ringgit Malaysia and iii) a 1% hydro tariff adjustment.
  Meanwhile, resources sales were up 16% YoY to RM50m, led by a 19% increase in sales of lime products to RM46m while non-lime products fell 11% to RM4.4m. Despite seeing a 7% drop in sales volume of lime products, average selling price of lime products rose 28% YoY on progressive price adjustments to defray rising production and energy costs. It is worth noting that petcoke costs jumped 72% YoY.
  Packaging sales increased by 18% YoY to RM99m on higher sales of both flexible packaging and paper bag products.

• Core earnings saw a small uptick. Excluding the impact of foreign exchange movements and fair value on put option liability, the Group’s core earnings rose 2% YoY to RM95m, led by renewable energy (+3.9%) despite weaker results from resources (-21.0%) and packaging (-38.0%). Renewable energy earnings rose to RM114m, led by higher hydropower energy earnings in Laos, partially mitigated by higher interest expense. Excluding the RM0.9m provision write-back recorded in 4QFY21, resources earnings was marginally lower at RM3.4m as a result of lower rate of plant utilization from lower production volume. Packaging earnings contracted 38% YoY to RM6.6m, due to higher cost of raw materials and stiffer price competition amidst slowing demand.

• Oleochemical business continued to bleed. The 50%-owned oleochemical business registered a share of loss of RM4.6m as the production at Edenor was disrupted several times by service, repair and upgrading works amidst a soft market, stiffer competition and volatile movement in palm kernel prices.

Source: PublicInvest Research - 28 Feb 2023