Investment Highlights

• We maintain BUY on Mega First Corporation (MFCB) with a higher fair value of RM5.40/share vs. RM4.45/share previously. Our revised fair value is based on a rolled- forward FY25F PE of 10x instead of FY24F originally. The PE of 10x is the average PE of the power sector. We ascribe a neutral 3-star ESG rating for MFCB.

• We have raised MFCB’s FY24F net profit by 8% and FY25F net earnings by 5% to account for lower minority interest and higher earnings from the DSHP (Don Sahong Hydro Power) plant in Laos. These are expected to drive MFCB’s net profit growth of 19.3% in FY24F and 11.9% in FY25F.

• DSHP is expected to perform well in FY24F, underpinned by currency gains and commissioning of the 5th turbine in 3QFY24.

• We estimate that DSHP’s EBIT would improve by 2% for every 10 sen depreciation in MYR. We think that the 5th turbine would boost EBIT by 3% in FY24F assuming an EAF (equivalent availability factor) of 40%. The 5th turbine would boost DSHP’s capacity to 325MW from 260MW upon completion.

• We believe that EBIT of the resources division (lime mining) would improve by 20% in FY24F on the back of higher selling prices and margin enhancements. Also, we reckon that raw material costs (mainly petrocoke) have softened.

• Petrocoke usually tracks coal prices as they are substitutes. According to Bloomberg, average coal price (Newcastle) has dived by 46.4% to US$127/tonne in 1Q2024 from US$236/tonne in 1Q2023.

• The resources division is also a beneficiary of the appreciation of USD against the MYR as export sales account for 60%-70% of revenue.

• As for the packaging division, we believe that earnings would improve in FY24F as operations re-commenced after being affected by a fire last year. Also, raw material costs have stabilised.

• According to Bloomberg, the weekly price of South-East Asian film grade LDPE polyethylene was US$1,104/tonne in 1Q2024 vs. US$1,148/tonne in 1Q2023.

• MFCB is currently trading at an undemanding FY24F PE of 8x, which is below the 5-year average of 10x.

Source: AmInvest Research - 3 Apr 2024