Excluding i) income tax penalties (RM14.9m) ii) gain on foreign exchange (RM15.1m), iii) gain on disposal of a subsidiary (RM1m), iv) fair value loss on put option liability (RM3.1m) and minority interests, Mega First reported core earnings of RM265m (YoY: -8.7%) for 9MFY23, accounting for 66% and 71% of our and the consensus full-year expectations, respectively. Equivalent availability factor (EAF) for the Don Sahong hydropower plant stood at 97.6% (9MFY23: 89.4%) Management expects the average EAF at 91% for 2023. Following the recent fire incident at one of the flexible packaging plants and extensive upgrading works of its oleochemical plant, we cut our FY23F earnings forecasts by 5% to reflect the capacity losses in the final quarter. Maintain Outperform call with an unchanged SOP-based TP of RM5.28. No dividend was declared for the quarter.

• 3QFY23 revenue (QoQ: -1.6%, YoY: -13.8%). The Group’s revenue slipped 14% YoY to RM320.4m, mainly dragged by weaker resources and packaging sales while renewable energy sales were higher. Sales from the resources segment dropped 21% YoY to RM48m, as lime product sales fell 22% YoY to RM43.7m while non-lime product sales dropped 3.6% YoY to RM4.6m. Export volume of lime products was adversely affected by i) slower mining activities, ii) high inventory level and iii) maintenance shut down in one of its key customers. 
  Packaging sales fell 6.2% YoY to RM98.1m, dragged by slower sales demand for both paper bags and flexible plastic packaging films. 
  Renewable energy sales grew 3.7% YoY to RM164.2m, led by a i) 3.2% appreciation of the US dollar against Ringgit, ii) a 1% hydro tariff adjustment and iii) a 16.5% increase in solar energy sales to RM2.2m, partially offset by a marginal decline of 0.6% in hydro energy sales volume. Don Sahong hydropower plant registered an EAF of 97.6% in 3QFY23, a tad lower than 3QFY22’s 98.2%.

• Core earnings slipped 7.8% YoY. Excluding the exceptional items, the Group’s core earnings dropped 7.8% YoY to RM102m, mainly due to a RM4m loss from JV and associates as a result of RM4.5m share of loss from the oleochemical business, Edenor. Meanwhile, renewable energy earnings improved by 7.4% YoY to RM122.8m, led by higher sales and lower net interest expense. Despite recording lower sales, both resources and packaging earnings advanced 12.7% and 15.3%, respectively on the back of favourable change in the sales mix and better production efficiency.

• Oleochemical remained loss-making. Excluding a RM16.9m one-off bargain gain adjustment from the group’s investment last year, the jointlyowned oleochemical business, Edenor would have seen a narrower loss from RM4.9m to RM4.6m in the current quarter as it continued to experience some capacity loss due to the fine-tuning of operations following the upgrade of plants and new facility.

Source: PublicInvest Research - 30 Nov 2023