After oleochemicals, Mega First adds small exposure to semiconductors

KUALA LUMPUR (May 26): Fresh from turning around its newly acquired oleochemicals business, Mega First Corp Bhd (MFCB) has further expanded its exposure in the booming semiconductor space, following its acquisition of a 28.83% stake in Integrated Smart Technology Sdn Bhd (IST) for RM5.56 million.

The small venture was a focus among market participants in the latest quarterly results briefing — likely the first results briefing by a Malaysian-listed company that is open to the public — by MFCB, which is mainly involved in renewable energy sales, limestone quarrying and packaging.

IST, which is involved in automated test machines for the semiconductor sector, is expected to generate around RM10 million per year or around RM2.9 million for MFCB’s equity portion, MFCB independent director Yeow See Yuen at the briefing.

This is not the first electrical and electronic (E&E) venture by MFCB, which also holds a 100% stake in Bloxwich (Malaysia) Sdn Bhd. Bloxwich offers supply panels, LED and other parts of foreign car companies and contributes just a few million ringgit per year.

MFCB is also a sister company to LED manufacturer D&O Green Technologies Sdn Bhd, by virtue of having the Goh family as a major shareholder.

“We happened to come across a team of good people with potential,” said Yeow on IST. “We decided to invest to help them grow the business to a substantial size with guidance, vision, balance sheet strength and business acumen [of the Mega First Group],” he said. The remaining stake in IST is owned by its co-founders.

The latest venture came after MFCB announced a faster-than-expected turnaround of its oleochemicals business that is held through 50%-owned Edenor Technology Sdn Bhd, which it invested in in 2021.

In the first quarter ended March 31, 2022 (1QFY2022), Edenor posted a profit after tax of RM7.85 million or RM3.93 million for MFCB’s equity portion, on revenue of RM331 million.

Touching on Edenor, Yeow said MFCB expects utilisation rate to improve from the current average of 65%, as the group continues to look for efficiency improvements over the next 24 months, and to improve PBT margins to between 5%-10%, from 2% currently.

On core businesses

MFCB is also involved in the sale of hydro and solar energy, as well as packaging. It is also one of three limestone quarrying companies in Malaysia.

It expects revenue from its packaging business — comprising Hexacase group and Stenta Films (M) Sdn Bhd — to increase further from the current annual range of around RM400 million, with initial capacity expansion for both companies to complete by 2024.

As to concerns about declining earnings in its quarrying business, MFCB said the weaker performance is due to higher fuel and other costs but assured that demand and margins remain stable, which is why the group is maintaining the business.

For the group, the main cash generator remains the Don Sahong hydro plant in Laos, where its fifth turbine will be installed by 2024.

MFCB is also continuing to expand in the solar space with projects here and in the Maldives, but expects that it will be a challenge for the solar contribution to catch up with hydro — as a total of 100MW solar capacity is only expected to churn out around RM12 million in profit, said Yeow.

In total, MFCB has completed energy capacity of 260MW (hydro) and 15MW (solar), with additional capacity secured of 65MW and 27MW respectively, to date.

The group has also raised its cash holdings to RM350.63 million from RM211.36 million, reduced its net gearing to around 0.14 times, and kept dividend payouts modest for now in anticipation of potential projects or M&A opportunities “that could give at least 10% IRR”, said Yeow.

In 1QFY22, MFCB's net profit rose 10.9% to RM81.34 million from RM73.34 million, supported by higher contributions from the renewable energy and packaging divisions.

Quarterly revenue rose by 40.61% to RM272.38 million compared with RM193.72 million, supported by higher sales contribution across all of its core divisions. The revenue contribution is split between renewable energy (46%), resources (16.6%), packaging (34.8%) and others (2.6%).

Shares of MFCB settled 0.8% or 3 sen lower at RM3.71 on Thursday, giving the group a market capitalisation of RM3.67 billion.