Maintain BUY

Don Sahong’s progress is in-check, with the wet testing phase to begin in 3Q19. With Don Sahong’s power to be supplied to Cambodia, works on a new higher voltage transmission line to connect Don Sahong (Laos) to Stung Treng (Cambodia) is also in the works. We keep our earnings forecast, but our RNAV-based TP is reduced to MYR4.35 (-25sen) after lowering our PER multiple pegged to Resources in light of the challenging outlook for the segment.

First Turbine Undergoing Wet Test

As of end-May 2019, cumulative physical completion of Don Sahong has hit e.90.5%. The second and third turbines are currently undergoing the dry test while installation of the fourth turbine is well underway. With the upstream coffer dam opened in May 2019, the initial stage of wet testing for the first turbine has also begun. With only e.9.5% of progress left to recognize, we expect MFCB’s construction profit to decline in 2H19, which we have factored into our forecast. However, this could be offset by test energy sales in 2H19, yet to be imputed into our earnings.

Cambodia’s Energy Shortage Issue

With Cambodia facing power shortage, Electricite Du Cambodge (EDC) has signed a power purchase agreement (PPA) with Electricite Du Laos (EDL) in Mar 2019 to purchase up to 195MW of power from Laos that would be supplied largely by Don Sahong (260MW) due to its proximity to the Laos-Cambodia border. We understand a new transmission line of 500kV/230kV is currently in the works to connect Don Sahong and the Stung Treng substation in Cambodia. Currently, Laos is already supplying power to Cambodia via existing 115kV lines from Ban Hat to Stung Treng. At this juncture, MFCB believes the new transmission line could be completed in-time for Don Sahong’s commencement of operations.

Demand for Lime Products Remain Slow

MFCB’s Resources division is not expected to see significant earnings recovery in FY19E, largely due to i) weak demand from the steel players and ii) compressed margins. MFCB is also unable to pass on the cost through higher prices as that could erode sales volume if its customers switch to imports from Vietnam and Indonesia as an alternative.

Source: Maybank Research - 17 Jul 2019