Stripping out i) gain on foreign exchange (RM3.3m), ii) insurance income for packaging assets damaged by fire incident in 2023 (RM22.3m), iii) unexpected one-off losses incurred by JV-owned Edenor (RM13.9m) and iv) minority interests (RM12.5m), the Group kick started 1QFY24 with core earnings of RM97.4m, up 22.5% YoY. The stronger results were broadly in line with our and consensus full-year expectations, making up 21.4% and 21.7%, respectively. It is worth noting that the renewable energy segment, which contributed 88% to the Group’s bottomline, saw a decline in the average Equivalent Availability (EAF) from 81.9% to 79.3% while there was a 1% adjustment in hydro tariff since 1st Oct 2023. Maintain Outperform with an unchanged SOP-based TP of RM5.36 nonetheless. No dividend was declared for the quarter. Key re-rating catalysts include i) a more favourable power purchase agreement, which is being finalized soon and ii) maiden contribution from the 40%-owned modern farming business.

• 1QFY24 revenue (QoQ: -3.3%, YoY: -9.8%). Excluding revenue from Tawau power plant, which was disposed in May 2023, the Group would have registered a 5.6% YoY increase in topline to RM313.5m, contributed by higher sales from the Renewable Energy segment (+7.2%) and Resources segment (+14.2%). 
  
  The improved renewable energy sales to RM137.7m was mainly driven by hydro energy sales (+6.5%) to RM134.9m and also a surge in solar energy sales (+53.1%) to RM2.8m, partially offset by a 2.6% drop in EAF to 79.3% due to lower water levels. Resources sales rose from RM55.8m to RM63.8m, led by a 9% increase in sales volume of lime products and a 7.6% gain from export currency despite seeing a decline of 12.6% in nonlime products. On the other hand, packaging sales saw a marginal drop of 0.7% to RM102.8m as expansion of customer base was offset by stiffer competition.

• Core earnings rose 22.5% YoY. Excluding the exceptional items, the Group’s core earnings gained 22.5% YoY to RM97.4m for 1QFY24, contributed by all core segments. Renewable Energy earnings rose from RM74.1m to RM85.8m as higher interest expense was outpaced by the additional core profit recognized from Don Sahong Hydropower plant following the increase in effective stake from 80% to 95%. Resources earnings soared 150.3% YoY to RM14.4m, attributed to improved cost efficiency. Lastly, packaging earnings grew 17.6% YoY to RM8.6m, helped by improved cost efficiency.

• Oleochemical business dampened by unexpected plant outage. The jointly-owned oleochemical business, Edenor made a wider loss of RM13.9m as it experienced significant capacity loss from plant stoppage for maintenance cum repair and upgrading works. Nevertheless, management anticipates a turnover in 2H, supported by improved market conditions.

Source: PublicInvest Research - 23 May 2024