Public Invest Research retains Outperform for Mega First

KUALA LUMPUR: Public Investment Bank Research (PIVB) is maintaining its Outperform call with an unchanged target price of RM4.48 for Mega First Corporation Bhd.

The research house said on Monday during a recent meeting, the management provided updates and noted the stronger construction progress in its Don Sahong Hydropower project after reaching about 46.5% last year, with a target of close to 80% by the end of this year.

Construction of the 30km transmission line will take place soon while the first turbine will be installed by 1QFY19. 

“Construction profit margin is expected to be higher than the 26.5% it registered over the years as the finance cost and transmission line cost are lower than previously budgeted,” it said. 

Meanwhile, the Laos government’s 100km transmission contract has been awarded, with construction also kick-starting soon.

PIVB Research said Mega First also sees a downward revision in the total project cost which was earlier estimated at US$417mil, thanks to the lower-than-expected expenditure in finance cost and transmission line, which would help lift construction profit margins this year onwards. 

Resources segment, which contributes the bulk of its cash flow before Don Sahong contributions kick in, expects to see export sales dominate this year as it penetrates into new markets in the region. 

“This could potentially offer higher sales orders than local buyers,” said PIVB Research.

In Malaysia, construction of its eighth kiln in Gopeng is underway and is expected to be completed by end-2018. 

The new kiln will bump up the total capacity by 400 tonnes to 600 tonnes a day or 25%-38% to 1,960 tonnes to 2,160 tonnes a day, making it the biggest quicklime producer in Malaysia from 2019 onwards. 

Currently, Belgium-based Lhoist Malaysia which has a lime plant in Tapah, Perak, is the closest competitor with a total capacity of 1,600 tonnes to 1,700 tonnes a day. 

“Upon completion, we expect to see an annual earnings growth of 10%-15% over the next three years,” it said. 

PIVB Research pointed out Mega First’s 60%-owned Shaoxing power plant in China has terminated operations as the concession ended on Oct 22, 2017. 

“As a result, we gather Mega First is expected to incur a huge writeoff in the upcoming 4Q results, estimated to be around RM60mil due to the i) one-off provision for retrenchment of workers and ii) reversal of translation gains over the cumulative years.  

“The 51% owned Serudong Power Plant in Tawau, which contributes profit of RM4mil to RM5mil per annum to Mega First, has also ceased operations since the expiry of the power purchase agreement on 2 Dec 2017.  

“We understand that the Ministry of Energy, Green Technology and Water has given the green light on the extension deal (three years + two years of option). Nevertheless, it is still subject to the Sabah Electricity Board’s approval. 

“Worst-case scenario, extension talks will be terminated and the power asset will be sold at a scrap value,” it said.
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