PETALING JAYA: Mega First Corp Bhd
’s renewable energy (RE) business in southern Laos is set to power earnings growth on higher power tariffs and capacity, backed by a higher equity stake in the asset.
Ambank Research noted Mega First is set to gain from raising its effective stake in Don Sahong Hydropower Plant (DSHP) to 91.3% from 80% recently and should result in a 5% increase in earnings contribution from the hydropower facility.
The installation of a fifth turbine at the 260MW DSHP in the third quarter (3Q) of financial year 2024 (FY24) is expected to boost net profit by another 2%, the research house noted.
DSHP is about 75% completed and is expected to achieve an equivalent availability factor (EAF) of 91% in FY23 versus 94.6% in FY22.
The facility’s EAF is expected to be lower this year due to lower water levels and due to the maintenance works carried out in 2Q.
“In spite of this, we forecast DSHP’s pretax profit to grow by 5% to RM460.7mil in FY23, underpinned by currency gains and a 1% tariff hike in October,” the research house stated in a report following an analysts briefing.
Ambank Research added contribution from Mega First’s resources division is anticipated to improve in 4Q23. In 3Q23, sales volume was affected as a key export customer was carrying out plant maintenance.
“We estimate the division’s pre-tax profit to grow by 38% to RM25mil in FY23 on the back of improved sales mix and currency gains,” it noted.
The group’s oleochemical joint venture, Edenor Technology Sdn Bhd, is set to experience stabilisation in its operations in the final quarter of the year and see its losses decline from RM4.5mil in 3Q23.
The research house forecast Mega First’s share of net loss in Edenor to amount to RM10mil in FY23.
It added the company is trading at an attractive FY24 price-earnings (PE) multiple of eight times, which is below its five-year average of 10 times.
“We maintain ‘buy’ on Mega First with an unchanged fair value of RM4.45 a share, based on FY24 PE of 10 times, which is the average for the power sector,” Ambank Research stated.
