Mega First on the growth radar with Laos power project as booster

PETALING JAYA: Mega First Corp Bhd, a company involved in the power and resources businesses, has seen some interest in its shares since the beginning of the year.

Its stock has risen around 78% year-to-date to RM3.83, outperforming the benchmark index which is up about 7% over the same period.

Analysts said the growing interest is due to the company’s Don Sahong hydropower project in Laos, which is almost 30% completed, and the fact that the project is coming closer to its completion date.

Director Yeow See Yuen tends to agree.

“When we first started the project, there were a lot of things in the air ... as we reach every milestone, more uncertainties are removed; that could explain the interest,” he said.

The hydropower project, which is on track for full completion by 2019, is expected to be the company’s next growth catalyst.

Mega First’s current power plant concessions in China and Tawau, Sabah, are close to expiring.

“Now that we have this new hydropower plant, it’s another 25 years and its capacity is going to be larger than the two (China and Tawau plants) combined,” Yeow said.

“We are now doing the civil works (for Don Sahong) and while we are doing that, the turbines are being assembled.

“Once the civil works are completed, it will be a 260-megawatt plant,” Yeow said.

According to him, once the Laos plant runs full steam, Mega First, which generates most of its income from the power division, should see a boost in earnings.

“It should be a very significant contribution starting from financial year ending Dec 31, 2020.”

Gross margin from the plant’s operations is envisaged to be around 65% but this depends on tariff rates, Yeow added.

The company is not among the first to have such plants in Laos, he said, as there are quite a number currently under construction and also in the pipeline.

“Renewable energy is favoured because it doesn’t pollute. The demand is there, as countries progress; they will need more and more power,” he said.

Yeow said the company, which is in a net-cash position of about RM200mil, does not currently need to raise any more funds for this hydropower plant project, having completed a rights issue exercise fairly recently.

“Laos’ political system is communist, so there are of course legal challenges, but these are being cleared,” Yeow said.

Mega First’s resources division has a total of seven lime kilns currently with a total capacity of 1,560 tonnes per day and a utilisation rate of up to 75%.

The company plans to boost this up to 2,000 tonnes per day soon. Whether or not this expansion would contribute to its earnings is a function of demand, Yeow said.

In a note to clients earlier this month, PublicInvest Research pointed out that the group also had a piece of agricultural land in Mondulkiri Province, Cambodia, measuring 9,477ha and its is planning for a coconut plantation, with the ultimate plan to venture into the coconut-related food and beverage business.

For the financial year ended Dec 31, 2016, Mega First made a net profit of RM120.7mil on revenue of RM913.8mil against a net profit of RM74.3mil on revenue of RM588.7mil a year earlier.

The company does not have a fixed dividend policy but has been paying out dividends regularly.

“As the company is in the midst of putting in its investments into the US$417mil (about RM1.8bil) mega hydropower project in Laos, there is a possibility of lowering its dividend payout these (next) few years until the hydropower plant is fully commissioned,” PublicInvest said.

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