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PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 9 Jul 2020, 10:04 AM

 

Mega First Corporation- Off To A Good Start

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Mega First posted a 1QFY20 earnings growth of +81.6% YoY to RM57.2m, bolstered by energy sales contribution from the Don Sahong Hydropower plant in Laos which is now under full commercial operation. The strong set of results were in line with our and street expectations, making up 25% and 20% of full year numbers respectively. In view of the stronger capacity utilization levels in the subsequent months as well as huge interest savings for its USD150m borrowings due to the US Federal Reserve rate cuts, we have revised up our FY20-22F earnings forecasts by 9%-14%, consequently, raising our SOP based TP from RM6.29 to RM6.74. Maintain Outperform call.

  • 1QFY20 revenue (QoQ: -17.9%, YoY: -27.6%). The Group’s revenue softened by 28% YoY to RM160.7m, mainly due to the absence of construction revenue in the power segment following the plant’s full commercial operation on 7 Jan 2020. Contribution from the segment was down 39.2% YoY to RM103.2m, which is based on the average energy availability factor of 70.7%, the lowest for the year as a result of the dry season. Revenue in the resources segment climbed 5% YoY to RM34.4m, led by a 6.5% YoY increase in sales of lime products to RM31.6m while contribution from other lime products was RM0.8m lower at RM2.9m. Sales volume of lime products grew 7.4% YoY on higher export demand, partially offset by weaker domestic sales as a result of the Movement Control Order starting from 18 March 2020. The average selling price of lime products remained steady YoY. Meanwhile, the newly introduced packaging & label segment saw its sales improve by 29.3% YoY to RM19.2m on the back of increased sales of paper bags as well as increased demand for flexible packaging products from new customers.
  • 1QFY20 core profit jumped 81.6% YoY to RM57.2m. The stronger earnings were mainly driven by both power and resources segments while packaging & labels earnings remained at RM0.5m. The power segment, which contributed 97% of the Group’s bottomline, saw its energy pre-tax profit up by 43.6% YoY to RM64.6m. The energy business commanded EBITDA and pre-tax margin of 88.1% and 62.6%, respectively. Meanwhile, pre-tax profit from resources segment rose 25.7% YoY to RM4.3m on i) higher sales volume, ii) increased plant utilization and iii) lower fuel costs. On a cheerful note, orders from the new Australian company, Newcrest Mining, which is expected to take up 150k mt of quicklime products p.a. has started to come in this month.
  • Expecting stronger utilization levels for the Don Sahong Hydropower station. Its recorded energy availability factor for the period stood at 70.7%, lowest for the year as a result of the dry period in Laos, which typically stretches from January to May. We understand that it is likely to run near full capacity next month when the wet period sets in, which will see higher water levels and stronger currents. Based on our latest forecast, we expect to see an average energy availability factor of 78% for 1H and 98% for 2H. Meanwhile, the Group has seen the payment collection period from EDL normalize, partly receiving the payment for billings in February.

Source: PublicInvest Research - 29 May 2020

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