We initiate coverage on Mega First Corp (MFCB) with an Outperform call and SOP-derived fully diluted target price of RM3.85. Given its steady recurring income from the power business coupled with decent earnings prospects from its resources arm, we think that MFCB‟s investors today get both businesses for nearly free at current share price. Based on our SOP valuation, we see deep underlying value in the company. Further potential re-rating catalysts include i) stronger-than-expected production growth for the resources business, ii) renewal of concession for the power business in China and Sabah and iii) completion of its hydropower project in Laos by 2019, which will be the growth driver for the Group in the next couple of years.
A low profile company. MFCB, established in 1966, has undergone a series of restructurings since it was relisted in 1991. The company started as a mining company where it operated one of the largest copper mines in Sabah. Since then, the company has diversified into power, resources and property activities, which have become the core businesses for the Group today. The entry of new shareholder, Mr. Goh Nan Kioh in 2003 brought further improvement to the Group as earnings were enhanced at a decent average annual growth rate of 10% while NTA/share has also leapt from RM0.90 to RM3.11 over the last 10 years.
Solid balance sheet with strong free cash flow. As at FY13, the Group has a total net cash & investment in quoted shares of RM178m or RM0.79/share with annual free cash flow per share of approximately RM0.32/share. Backed by the steady cash flow from the power business as well as the improved profitability of the resources segment, the company has been using the funds to do share buyback, already owning 19.9m or 8.2% of total issued shares. It has been consistently paying dividends with a minimum of 7sen p.a. (25%-40% payout) in the last 5 years, which translate into 3.2% dividend yield.
Potential mega returns from hydropower project in Laos. Our SOP valuation has not taken into account potential contributions from the 256 MW run-of-river hydropower project concession in Laos, which could potentially boost the RNAV contribution by at least RM1.00-2.00 per share upon completion. The RM1.5bn 256MW Don Sahong Hydropower project is expected to be completed by 2019. KEY FINANCIAL SUMMARY (RM m)
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
speakup
26,807 posts
Posted by speakup > 2014-09-26 17:34 | Report Abuse
why MFCB director selling? isn't it seriously undervalued?
http://www.bursamalaysia.com/market/listed-companies/company-announcements/1749645