Upside from energy test sales; TP increased 10%

The decrease in 3Q19 net profit was in-line with MKE/consensus as construction profit continued to taper with construction of Don Sahong nearing the end (95% complete as of end-Sep 2019). We expect 4Q19 to be a bumper quarter with potential accretion from the energy test sales. Our earnings forecasts are unchanged but we raise our RNAV-based TP 10% to MYR5.50 after rolling forward DCF base year. Reiterate BUY supported by strong earnings growth expected from Don Sahong when operations commence in Jan 2020.

Don Sahong 95% completed

3Q19 core net profit of MYR14m (-55% YoY, -34% QoQ) brought 9M19 core net profit to MYR66m (-35% YoY) meeting 65%/66% of our/consensus FY19E. The weaker core earnings in 3Q19 were expected as progress billings for the Don Sahong project taper off towards the tail-end of construction. The new 500kV transmission line (black line in Fig 2.) from Don Sahong to Stung Treng is expected to be completed by Dec 2019, in time for Don Sahong’s commercial operation in Jan 2020.

Slight recovery at Resources segment, but…

PBT of MYR5.5m for the Resources segment in 3Q19 increased 19% YoY (+23% QoQ), in-line with the increased revenue (+11% YoY, +5% QoQ) from improved sales volume of lime products (+8.3% YoY). PBT margin for the division also saw a slight uptick in 3Q19 (+1.0ppts YoY, +2.0ppts QoQ) on improved plant utilisation. That said, MFCB expects 4Q19 could be another weak quarter for resources due to slower regional demand and weaker margins from lower plant utilisation.

We expect a bumper 4Q19

Our FY19E earnings are unchanged, with potential upside coming from the sale of energy during wet testing, which could boost 4Q19 core earnings by up to e.USD8m. MFCB could also book a one-off cumulative adjustment in 4Q19 for its lower project costs at Don Sahong due to lower-than-expected interest rates. Reiterate BUY with 16% total return.

Source: Maybank Research - 19 Nov 2019