MFCB: Operational Improvements Set to Drive Stronger Second Half, Analysts Maintain Positive Outlook

A prominent Malaysian conglomerate is poised for a significant rebound in the second half of the fiscal year, driven by robust performance in its Renewable Energy (RE) segment and a gradual recovery across its resources and packaging divisions. Management anticipates a strong uplift in earnings, underpinned by strategic operational improvements and cost efficiencies.

Performance Review and Drivers

Despite a 5.4% increase in USD-denominated energy sales for the RE segment in the second quarter of FY25, a 3.6% year-on-year decline was recorded, primarily due to a 9% translation loss. However, the hydropower plant is currently operating at full capacity, benefiting from high water levels experienced during the wet season, with the Pakse substation recording its highest water level since 2019. This optimal utilization is expected to boost the Energy Availability Factor (EAF) to above 80% in 2HFY25, a significant improvement from 1HFY25’s 74.6%.

The oleochemical business, which faced nine consecutive quarterly losses totaling RM45.4 million in 1HFY25, is showing signs of recovery. With gas supply fully restored since July 2025, the plant is gradually ramping up its capacity. While challenges remain with volatile palm kernel prices and the high palm kernel/CPO ratio, narrower losses are anticipated in the second half.

Strategic Initiatives and Future Outlook

Looking ahead, the company is implementing several initiatives to sustain growth. An overhaul of two turbines is planned for the dry season in December, and management notes a recovery in solar panel prices, which form a significant portion of solar project costs. The first Battery Energy Storage System (BESS) project is progressing, with a partnership established with a leading Chinese firm targeting an internal rate of return (IRR) of 7-8%.

Beyond its core segments, the conglomerate is expanding its other ventures. Construction of a new hospital in Setia Alam is set to commence in 2QFY26, with completion expected by 2029. The Food Security business generated RM47 million in revenue in 1HFY25, though it recorded a modest loss of RM4-5 million. The 40%-owned CSC Agriculture Holdings is expanding its smart farming operations alongside growing sales channel distribution in Malaysia and Singapore. The company is also exploring a potential spin-off of its packaging business once it achieves operational readiness, signaling further strategic streamlining.

The overall sentiment remains positive, with analysts maintaining a BUY recommendation, reflecting confidence in the company’s strategic direction and anticipated operational improvements driving a stronger second half.