MFCB: Strategic Shifts and Valuation Appeal Drive Outperform Rating, Target Price Affirmed
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM5.39 (+65.3%) |
| Last Traded | RM3.26 |
| Recommendation |
PublicInvest Research has maintained an “Outperform” rating, setting a target price of RM5.39 based on a Sum-of-Parts (SOP) valuation. This recommendation comes despite a year-to-date share price decline of 27.3%, as the investment bank highlights an appealing valuation and strategic initiatives aimed at future growth. The current share price stands at RM3.26, implying a significant upside potential of 65.3% to the target price.
Performance Review and Valuation
The research notes that the company’s valuation appears attractive, trading at an unjustifiably low level below a price-to-earnings (P/E) ratio of 7x and beneath its current book value of RM3.54 per share. This favourable valuation underpins the continued positive outlook, even as the company navigates various operational adjustments and market dynamics.
Strategic Focus and Operational Adjustments
Management has expressed a commitment to building a “war chest” to capitalise on renewable energy (RE) opportunities in Laos and Cambodia, signaling a strong strategic pivot towards this segment. However, the income from the RE segment, being entirely USD-denominated, faces headwinds from a strengthening Ringgit.
In the hydropower segment, the Don Sahong plant is preparing for a significant overhaul. An exercise involving two turbines is scheduled, with the first taking place this month and the second in March. This overhaul is expected to slightly reduce the FY26F Energy Availability Factor (EAF) and incur costs of approximately USD2 million per turbine over a three-month period.
Meanwhile, the oleochemical business, specifically the JV-owned Edenor, is considered not strategically aligned with the group’s future plans. This segment grapples with commodity-related risks, overcapacity in Indonesia, volatile crude palm kernel oil (CPKO) prices, and plant issues, leading to lower and unpredictable margins. Edenor is projected to remain loss-making in 4QFY25, with accumulated losses significantly surpassing its current book value.
Future Outlook and Other Segments
The packaging segment, encompassing paper and flexible packaging, remains a key focus, with management setting ambitious growth targets and no current plans for a spin-off. Furthermore, the 40%-owned green farming business under CSC Agriculture in Tronoh, Perak, is undergoing realignment. The company aims to enhance planting technology, improve efficiency, and develop robust sales channels, which has led to a slowdown in green farming activities. This segment recorded losses of RM8.5 million in 9MFY25.
Despite the operational challenges and strategic realignments, PublicInvest Research maintains its positive stance, underpinned by the company’s attractive valuation multiples and long-term potential in the renewable energy and packaging sectors.
