MFCB hydropower project will be key growth driver

KUALA LUMPUR: Mega First Corp Bhd's (MFCB) power purrchase agreements for its China and Tawau power plants will expire while the resources segment will likely hit a speed bump in Q3, says Public Investment Research.

However, the research firm maintains its OUtperform call on the stock as its mega-hydropower project in Laos will continue to be a key growth driver over the long-term.

According to the research firm, MFCB has an option to extend the China power concession by another five years but management has yet to decide on whether to proceed with the extension. 

"Assuming there is no extension, there could be a minimal provision of RM10mil for the write-off of assets that will be recognized this year. Meanwhile, its 51-%-owned Tawau power plant concession will expire on 1 Dec. Management is currently in negotiations with the Energy Commission and is optimistic over the progress. We understand that the proposed power purchase agreement extension will be for another five-year period with a slight upward adjustment in the tariff rate."

However, the Don Sahong Hydropower project remains on track with construction having reached 30.9% compared to 7.4% in June last year.

"The first part of the turbine casing is expected to be delivered by next month. Though the rainy season has slowed down its on-site activities, its off-site activities such as manufacturing of the main turbine and generator components are in full swing.

"Management maintains its target of 45% to 50% by the end of this year. It expects to dish out the transmission line contract by the end of the month. The last chunk of fund raising exercise, which is the US$150mil borrowing, is also expected to be finalised by end of this month," says PublicInvest Research

The research firm adds that once the plant starts running its trial production in 2HFY19, there could be a one-off bumper gain to be recognised, which is not reflected in its current FY19 earnings forecast.

It also notes a "minor hiccup" in the resources segment as one of the key customers in MFCB's limestone business has experienced a temporary shutdown, affecting sales in Q3. 

"Nevertheless, the key customer has re-started its production lines, to which we expect to see a pick-up in sales in the final quarter. The current utilisation rate of its limestone production (about 40,000mt/ mth) stands at 70%, generating about 24k-34k mt/ mth."
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