Cash Generation Begins

FY19 results were significantly above our/market expectations due to one-off gains from construction profit and tax reversal in 4Q19. More importantly, Don Sahong was formally completed, and delivered its maiden energy sales. Reiterate BUY with a higher MYR6.10 TP (+11%) as Mega First transitions from accounting profits to actual cash generation in FY20. Transfer stock coverage to Tan Chi Wei.

Results Significantly Above

Excluding unrealised forex and fair-value adjustments, Mega First’s 4Q19 core net profit of MYR84m (+163% YoY, +484% QoQ) brings FY19 core net profit to MYR152m, 50%/47% above our/consensus forecast. The beat was mainly due to: 1) a one-off MYR39m gain in construction profit in 4Q19 following a downward revision to Don Sahong’s construction cost, and 2) a MYR14m deferred tax reversal following a reduction in Laos’ corporate tax rate. A 6en DPS was declared for FY 19 (+50% YoY), representing a 17% DPR.

Maiden (test) Energy Sales

The Don Sahong dam was completed in 4Q19, and delivered MYR30m of pre-tax profit from test energy sales in the quarter. The dam was commissioned in Jan 2020, and would thus contribute a full year’s worth of earnings and cashflow to Mega First in FY20. Separately, pre-tax profits of both the Resources and Property segments were lower sequentially in 4Q19 due to revenue softness.

Reiterate BUY

We raise our FY20/21 net profit by 38%/34% respectively as we reflect higher contributions from Don Sahong. Our TP is consequently raised to MYR6.10 (from MYR5.50). Our TP is based on a sum-of-parts, with power (Don Sahong) valued on DCF, resources at 12x PER, and property valued at book value. We have not yet included the proposed fifth turbine expansion at Don Sahong into our forecasts

Source: Maybank Research - 26 Feb 2020