PETALING JAYA: Mega First Corp Bhd is expected to post a strong set of results for its financial year ended Dec 31,2020 (FY20) on the back of higher availability factor, despite some margin pressure coming from the resources and packaging segments due to freight-related issues, said PublicInvest Research.
The availability factor for the company’s Don Sahong hydropower station in Laos in the fourth quarter of FY20 is expected to be higher than the third quarter of FY20’s 92.2%, given the higher water level during the wet period.
The availability factor of a power plant is the percentage of the time that it is available to provide energy to the grid.
“Mega First management also sees an improved availability factor for 2021 as 2020 was an exceptionally dry year, ” said PublicInvest Research.
Since two months ago, all electricity generated from the Don Sahong hydropower station has been sold to Cambodia through the new 500kV transmission line from Ban Hat substation.
Despite stalled discussions on the power purchase agreement, construction of the fifth turbine will most likely go ahead in early 2022 and will be used as a back-up in the event there is any outage issue or scheduled maintenance during the wet period.
“Meanwhile, Mega First’s resources arm is expected to see some margin pressure, as shortage of containers in global routes has resulted in a drastic hike in freight rates, ” said PublicInvest Research.
This has affected its resources margin as freight rate to India and Australian routes has shot up more than nine to 10 times since October and is expected to remain high until February.
Limestone production levels currently run at 38,000 to 40,000 tonnes per month or 80% to 85% utilisation rate compared to peak production of 42,000 tonnes.
Nevertheless, Mega First management is expecting decent year-on-year growth for the resources arm in the fourth quarter of 2020, albeit slower growth on a quarter-on-quarter basis.
As for the company’s packaging segment, it also faced similar transportation-related issues, which had affected the delivery of paper and resin materials and the finished products.
This was further exacerbated by the port congestion in Port Klang.
Besides the freight rate hike, the tight paper and resin material supplies due to the slow delivery further increased material costs, of which management has been trying to pass on to customers.
Meanwhile, planning for its mega factory in Melaka is currently underway while the expansion for the paper (200% increase) and flexible (100% increase) packaging capacity is expected to be ready by end-2021.
The total capex spending is RM120mil (excluding machinery costs for the mega factory) for the next two years.