Stripping out a one-off provision of RM11.4m income tax and RM14.9m  income tax penalties as well as foreign exchange (FX) gain amounting to  RM5.8m, Mega First reported core earnings of RM92.1m (YoY: +16.6%) for  1QFY23, accounting for 22.4% and 23% of our and consensus full-year expectations, respectively. The stronger results, which deem as broadly in line, were led by the renewable energy and resources segments. Energy availability factor (EAF) for the Don Sahong hydropower plant slipped from  84.7% to 81.9% in 1QFY23. Meanwhile, Management expects the average  EAF for 2023 to moderate from 94.6% to 91%. Maintain Outperform call with  a new SOP-based TP of RM4.75 after rolling over valuations to FY24. No dividend was declared for the quarter. The current share price significantly undervalues MFCB based on current PER valuations of only 7-8x.

• 1QFY23 revenue (QoQ: -5%, YoY: +28%). The Group’s revenue rose 28% YoY to RM347m, boosted by stronger sales contributions from all core businesses. Stronger renewable energy sales (YoY: +2.5%) were led by a  2% increase in hydro energy sales in Laos to RM126.6m while solar energy sales rose 26% YoY to RM1.8m, supported by 20.5MW of solar projects in  Malaysia and Cambodia. Stronger hydro energy sales were boosted by i)  a 4.7% appreciation of the US Dollar against Ringgit Malaysia and ii) a 1%  hydro tariff adjustment effective 1st Oct, partially offset by a 3.4% drop in  hydro energy sales volume.  Meanwhile, resources segment registered sales growth of 23.1% YoY to  RM55.8m, led by a 23.7% increase in sales of lime products to RM50.4m  and a 17.8% growth in non-lime product sales, favourable currency movement coupled with a 17.6% growth in sales volume which contributed to the stronger lime product sales. Packaging sales increased by 9.2% YoY to RM103.5m on higher sales of  both flexible packaging and paper bag products.

• Core earnings grew 16.6% YoY. Excluding the one-off tax provision  arising from the tax dispute between its 65%-owned subsidiary, Idaman  Harmoni S/B and the Inland Revenue Board, and FX gains, the Group’s core earnings rose 16.6% YoY to RM92.1m, led by renewable energy  (+6.6%) and resources (+9.4%) despite weaker results from the packaging segment. Renewable energy earnings rose to RM88.5m, led by higher  hydropower energy earnings in Laos and lower net interest expenses.  Resources grew from RM5.3m to RM5.8m on higher utilization rate.  Meanwhile, packaging earnings pulled back by 17% YoY to RM7.3m, due  to an increase in labour and electricity costs.

• Oleochemical returns to profitability. Despite Edenor posting lower  share of profit at RM2.3m vs 1QFY22’s RM4.1m, it was a turnaround for  the oleochemical business after posting 2 straight quarterly losses.

Source: PublicInvest Research - 25 May 2023