MFCB: Operational Resilience Drives Strong Quarterly Gains, Target Price Revised Upwards

The company demonstrated significant operational resilience in its latest quarter, with net profit expanding by a robust 42.6% quarter-on-quarter to RM120.9 million in 3QFY25. This strong performance was primarily buoyed by the Don Sahong Hydropower Plant (DSHP) division, which benefited from favourable monsoon rains.

Performance Review

Despite an overall 9MFY25 core net profit falling below initial forecasts, the 3QFY25 results indicate a positive turnaround. The DSHP division’s earnings proved resilient, supported by a 6% increase in sales volume and reduced amortisation and royalty expenses. The commissioning of a fifth turbine in July 2024 further contributed to increased electricity sales volume during 9MFY25, underscoring the division’s operational efficiency and capacity expansion.

Furthermore, the Edenor Oleo Joint Venture showed signs of recovery, with its losses narrowing to RM13.7 million in 3QFY25 from RM16.4 million in the preceding quarter. This improvement was largely attributed to the resumption of gas supply following earlier disruptions.

Challenges and Outlook

While the quarter showcased strong momentum, the company continues to navigate certain headwinds. The 9MFY25 core net profit was below consensus, largely due to weaker overall earnings from the renewable energy and resources divisions. The profitability of DSHP remains susceptible to the depreciation of the US Dollar against the Malaysian Ringgit, and the Edenor Oleo JV recorded wider losses on a yearly basis in 9MFY25 due to prevailing soft market conditions and capacity shutdowns in the first quarter.

However, management’s strategic focus on operational efficiencies and capacity utilization, as evidenced by the DSHP’s resilient performance and the narrowing losses at Edenor Oleo JV, suggests a positive trajectory. Despite initial adjustments to full-year net profit forecasts, the underlying operational improvements in 3QFY25 provide a solid foundation for future growth.

Investment Recommendation

Considering the robust quarterly performance and the positive operational adjustments, TA SECURITIES maintains a BUY recommendation for the company. The target price has been revised to RM0.25, representing an upside of 25.0% from the last traded price of RM0.20, reflecting confidence in the company’s ability to leverage its core assets and improve profitability going forward.