Smaller oleo losses in 2QFY25

Key Changes

Investment Highlights

• Mega First’s (MFCB) net profit retreated by 17.3% YoY to RM147.6mil in 1HFY25 dragged mainly by the depreciation of the USD against the MYR and larger losses at the Edenor oleo JV. Comparing 2QFY25 against 1QFY25 however, MFCB’s net profit improved by 35% to RM84.8mil as oleo losses declined. We believe that the fall in MFCB’s share price has reflected all of the negative developments. MFCB’s net profit is expected to recover by 20.6% to RM489.2mil in FY26F on the back of an earnings turnaround at the Edenor oleo JV. Hence, we maintain BUY with a target price of RM5.18/share.
• BUY with an unchanged TP of RM5.18/share. We derived MFCB’s TP of RM5.18/share by applying a FY26F PE of 10x. The PE of 10x is the average in the past five years.
• MFCB’s 1HFY25 core net profit was within our forecast but 10% below consensus. MFCB’s earnings are usually stronger in 2H of the financial year as the DSHP (Don Sahong Hydropower Plant) benefits from higher water levels during the monsoon season.
• RE division’s (mainly DSHP) EBIT edged down by 1.1% YoY to RM220.3mil in 1HFY25. Although the USD fell by 7.3% YoY against the MYR in 1HFY25, RE division’s EBIT only eased marginally as sales volume rose by more than 5% and amortisation and interest expenses declined.
• Resources and packaging EBIT slid YoY in 1HFY25. The two divisions experienced weaker demand due to global economic uncertainties. The resources division sells its products mainly to the mining and steel customers in Malaysia, Indonesia and Australia. The packaging unit was affected by competition from China. Resources EBIT sank by 33.6% YoY to RM18.2mil in 1FHY25 while packaging EBIT dived by 48.9% to RM12.7mil.
• Oleo JV recorded smaller losses in 2QFY25. MFCB’s share of net loss in the Edenor oleo JV declined to RM16.4mil in 2QFY25 from RM28.5mil in 1QFY25. We believe that the JV would swing into the black in 2HFY25 as gas supply at the Teluk Panglima Garang area has been restored after being disrupted by the explosion at Putra Heights in April.

Stock and Financial Data

Major Shareholders

Price performance

Graph showing MFCB MK vs FBMKLCI Index (Image not included as per instructions)

Company profile

Mega First Corporation (MFCB) is involved in hydropower plant, solar, lime mining and packaging activities. Apart from these, MFCB has coconut, macadamia, vegetable and fruit farms.

About 93% of MFCB’s FY23 EBIT (ex-investment holding) came from the renewable energy (RE) division while the balance 7% came from the resources (lime mining) and packaging divisions. The RE division consists of hydropower and solar activities.

MFCB’s Don Sahong Hydropower Plant (DSHP) sells electricity to Electricite du Laos (EDL). EDL in turn sells the electricity to Cambodia.

MFCB’s operations are in Laos, Malaysia and Cambodia.

MFCB’s competitive advantage lies in its recurring income from DSHP, which are denominated in USD. MFCB also has one of the largest lime mines in Malaysia. MFCB has high exposure to RE via its hydropower and solar operations.

Investment thesis and catalysts

We have a BUY on MFCB as PE is undemanding at 7.1x FY26F EPS.

Share price kickers are stronger-than-expected earnings from the oleochemical joint venture and an appreciation of the USD.

Valuation methodology

We applied a FY26F PE of 10x to arrive at MFCB’s target price of RM5.18/share. The PE of 10x is the five-year average.

Risk factors

Key risks are losses in the oleochemical joint venture and increases in logistics and petcoke costs.

We estimate that a 10 sen depreciation in the USD vs. MYR would affect the RE division’s EBIT by 2%, assuming everything else is the same.

EXHIBIT 1: EARNINGS SUMMARY

Source: Bursa Announcement

EXHIBIT 2: VALUATIONS

EXHIBIT 3: ESG MATRIX

Source: AmInvestment Bank

EXHIBIT 4: FINANCIAL DATA

Source: Company, AmInvestment Bank estimates

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