We attended Mega First’s (MFCB) analyst briefing last week with some encouraging catalysts shared by the management. The group is continuing with its vision of long-term recurring business ventures by setting up a food security division, which would involve capital expenditure (capex) of RM73m. On the progress of Don Sahong’s 5th turbine, there will be a new concession between MFCB and Laos’s EDL involving electricity sales from all the 5 turbines, which the group deems as favourable. Our Outperform call with SOP-based TP of RM5.28 are affirmed.

• Revenue growth via new investments. As at 30th Sept 2023, management has allocated capex of RM606.5m, of which 62% or RM376.6m is allocated for the renewable energy segment. Of this, RM198.5m is for the new 5th turbine and the remaining RM178.1m for the 46.5MW solar farm project in Malaysia under the Corporate Green Power Programme, 11.4MW solar farm project in Maldives and 8.1MW commercial and industrial rooftop solar projects. It has also allocated RM61.1m for remaining works on two new packaging factories and RM95.8m for new production lines. RM74m is budgeted for modern farming covering 772 acres in Perak, which also include a 60MW solar project.

• Positive progress on the 5th turbine concession. Management is currently in the final stage of negotiations with Laos’ Electricite Du Laos (EDL), which will see a favourable new concession for the Don Sahong Hydropower plant that includes all the 5 turbines with a combined capacity of 325MW. Announcement of the new concession is expected to be unveiled by 1QFY24. Meanwhile, Energy Availability Factor is expected to stay around 91% in 2024. Completion of the 5th turbine is in time for the wet season, which could see full capacity utilization. Assuming a conservative EAF assumption of 41%, the 5th turbine could generate annualized pre-tax net profit of RM40m for the group. The solar business is expected to contribute revenue of RM14-15m with a net profit of RM3m in FY24.

• New food security division. Apart from the 2,560-ha coconut and macadamia plantation in Cambodia, the group is also investing into an established platform in Malaysia that owns 1,300-acre fruit and vegetable farms and distribution channels in Johor and Pahang. Via the platform, they plan to develop modern farming or greenhouse farming for herbs, vegetables and fruits on a 772-acre (allocated 400 acres for modern farming) plot of lowland in Perak. Given the huge capex involved and concerns on heat or high temperature of lowlands in Perak, they have started on a pilot project while in the midst of acquiring the entire landbank in Perak under the MFCB name. Eventually, there are plans to integrate the established platform with the modern farming as it plans to have a bigger stake in the entity. Including nursery, the gestation for vegetable farming is about 30-45 days. To avoid the risk of price fluctuation and middleman costs, MFCB plans to have direct off-takers like supermarkets and hypermarkets. Based on the estimated annual production of 50k mt and average wholesale price of RM6/kg, it could potentially generate revenue of RM200m-300m p.a. or RM500k/acres. The modern farming design is expected to be ready by end-March 2024.

Source: PublicInvest Research - 8 Dec 2023