CEO Morning Brief

Mega First's 3Q Net Profit Falls 14% on Lower Revenue, Shares of Results in Equity Investment and Other Income

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Publish date: Thu, 30 Nov 2023, 08:43 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (Nov 29): Mega First Corp Bhd’s net profit for the third quarter ended Sept 30, 2023 (3QFY2023) fell 14.17% to RM102.53 million, from RM119.46 million a year before, amid lower revenue and lower share of results in equity accounted investment and other income.

Its share of losses in equity accounted investments was RM3.96 million for 3QFY2023, versus share of profits of RM12.29 million previously, while other income also fell to RM14.89 million, from RM16.95 million previously.

Other operating expenses and finance costs came in higher, dragging the group’s quarterly earnings. Operating expenses rose to RM12.96 million from RM11.74 million previously, while finance costs surged to RM10.33 million from RM8.25 million previously.

As a result, earnings per share dropped to 10.87 sen for 3QFY2023 from 12.64 sen a year before, its bourse filing showed.

Quarterly revenue also declined by 13.77% to RM320.38 million, from RM371.53 million a year ago. The decline in revenue was mainly due to the deconsolidation of Serudong Power Sdn Bhd (SPSB) and lower sales contribution from the resources and packaging divisions.

The group had on May 30, 2023 disposed of its 51%-owned subsidiary SPSB, an independent power producer that owns and operates a 36 megawatt (MW) diesel-fuelled power plant located at Tawau, Sabah, to focus on renewable energy.

For the nine months of FY2023 (9MFY2023), its net profit was down 13.24% to RM261.69 million, from RM301.63 million a year before, despite revenue inching up 1.8% to RM993.39 million, from RM975.78 million previously.

Moving forward, the group said the solar division’s earnings are expected to continue to improve in tandem with the group’s expanding solar portfolio.

For the resource division, the group expects demand for lime products in the region is expected to remain soft on slow mining activities in the region.

Nonetheless, the sales volume of lime products is expected to recover sequentially following the completion of plant maintenance by a key export customer in 3Q2023. Overall, the group expects FY2023’s earnings will be better than FY2022.

For the packaging division, demand is to remain subdued in the fourth quarter this year. It also expects a fire that broke out at one of its flexible plastic packaging factories to have a material negative impact on the reporting profit for the division in the final quarter of FY2023.

It expects RM40 million to be shaved from sales revenue, RM1.5 million from profit before tax and RM2 million in resulting capacity loss in the fourth quarter of FY2023 (4QFY2023).

It added that the damage of property, plant and equipment will result in an asset impairment charge of RM31.4 million in 4QFY2023.

“After taking into account the corresponding deferred tax effect, the impact to net profit is estimated at RM25.3 million. Accordingly, net profit attributable to shareholders of the company is expected to be reduced by RM15.7 million arising from the aforesaid asset impairment, it added.

For its joint venture investment in Edenor Technology, Mega First said the oleochemical industry is expected to continue to face tremendous challenges arising from excess industry capacity and intense price competition.

“Barring unforeseen production hiccups, we expect plant operations to further stabilise in the fourth quarter. This should result in further capacity increases and therefore sequential earnings performance improvement in the fourth quarter of FY2023,” it added.

Mega First’s share price settled six sen or 1.69% lower to RM3.50, giving the group a market capitalisation of RM3.46 billion.

Source: TheEdge - 30 Nov 2023

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