Case Study of Mega First Corporation Berhad (3069)

Overview

Mega First Corporation Berhad (MFCB) is a Malaysia-based investment holding and provision management services company founded in 1966, headquartered in Petaling Jaya, which primarily involved as the largest lime producers in Malaysia, acts as an operator in Electric Services sector, and involving in Property Division.

MFCB was listed in Main Market of Bursa Malaysia on 11 August 1970. The groups have its geographical markets such as Malaysia, China, Laos, India, Australia, New Zealand and other countries.


Business Model

MFCB is a diversified company principally involved in three core businesses; Powerplant operating and management; Earth resources on extracting, manufacturing and trading limestone; Property development and property investment. The group also engaged in other businesses such as manufacturing of label and packaging products, agricultural cultivation and development activities inter-alia.


Financial Review

Revenue

Based on the past 5 years of revenue chart above, the group’s revenue recovering from a 19% revenue drop in FY2015 and start to improve in FY2016 onwards. On a CAGR basis, MFCB has grown 25.4% based on 5 years. The increase in revenue was mainly due to the increase in construction profit from Don Sahong Hydropower Project to RM178.1 million in FY2018 compared to RM172.6 million in FY2017. (Source: Annual Report 2018)


Gross Profit

**Unable to capture figures due to the company restated all their information.


Net Profit After Tax

The Net Profit After Tax (PAT) of MFCB has a slightly decrease of 12.69% from RM167 million in FY2017 to RM145.8 million in FY2018. The decrease in net profit after tax (PAT) was mainly due to the expiry of the Sino-foreign Joint Venture in China on 22 October 2017 and Power Purchase Agreement in Sabah on 2 December 2017 which were not extended for commercial reasons. The two discontinued power plant operations registered an RM13.7 million loss in FY2018 mainly due to the one-off impairment charges, compared to a profit of RM15 million in FY2017. (Source: Annual Report 2018)


Cash Flow Statements

The net cash from operating activities has obtained cash flow of RM38.6 million in FY2018 which is lesser than FY2017 amounted to RM115.1 million. Even though the cash flow is lesser in FY2018 compared to previous year, the company still have enough cash used for business expansion.

The net cash from investing activities in FY2018 is (-RM412.6 million) was mainly due to the cash outflow for Don Sahong Hydropower Project (RM370.2 million), purchase of Property, Plant and Equipment (PPE) (RM49.8 million), payment for rights of land use (RM0.469 million) and investment in joint venture and associate (RM4 million). The negative cash flow indicates that the firm is investing more in its business to grow.

The net cash from financing activities in FY2018 has obtained a positive figure RM364.9 million was mainly attributed to the net drawdown of bankers’ acceptance & revolving credits (RM4.6 million), acquired term loans (RM361.9 million), withdrawal of deposit pledged (RM1.6 million) and proceeded received from conversion of warrants (RM13.2 million), exercise of ESOS options (RM1.4 million) and proceeds from non-controlling interest. (RM12.5 million).

Based on liquidity ratio calculation, MFCB has a current ratio of 0.723 times in FY2018 indicates that the company may face some liquidity issue if any unforeseeable circumstances forcing the company to settle the current liabilities using current assets such as inventories, contract assets, receivables, derivatives asset, bank balance and deposits amounting to RM290.3 million.


Prospect and Challenges

After taking nearly 4 years, MFCB’s Don Sahong Hydropower Project worth RM1.67 billion in Laos has been completed earlier than expected has significantly brought down the project cost. According to the official statement from Chinese contractor, Sinohydro Corp Ltd, all turbines have entered commercial operations after the successful trial of the fourth turbines. (Source: TheEdge, 14Nov2019).

The Don Sahong plant is expected to generate annual revenue of US$120 million upon its commercial operations in FY2020. The plant is environmentally friendly because there is no dam and it run-of-the-river hydroelectricity. (Source: TheEdge, 15Dec2018)

The RM110 million expansion programme of Resources Division started in FY2015 is now completed with Kiln 8 ready for commissioning in this month. The group have a total increased capacity of 1,200 tonnes per day to 1,960 tonnes per day compared to FY2015. With this expansion, the group now operated as one of the largest lime manufacturing operations in Malaysia. (Source: Annual Report 2018)

The group has RM11 million worth of unsold property inventory as the property market condition in Malaysia is still weakening. The group will continue to sell the remaining completed property units and no plans to restart its development segment. (Source: TheEdge, 18Nov2019). The rental income from PJ8 and Greentown carparks is expected to remain stable. (Source: Annual Report 2018)


Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Average

Basic Earnings per Share [5 years CAGR] = Average

Interest Coverage = Good


My Insight

Based on my calculation on Discounted Earnings Model, Mega First Corporation Berhad has a fair value of RM12.257. The current market value of MFCB is RM4.760 which is undervalued. (Based on 6Dec2019). MFCB gas a beta of 0.485 (500 days) indicates that the company is less volatile than the current market, which means the investors/traders are not actively trading in this stock, they may face lower risk. Based on my computation of Compound Annual Growth Rate (CAGR), MFCB has an expected market return of 6%.

In conclusion, Mega First Corporation Berhad has achieved outstanding performance for revenue in FY2018 due to Don Sahong projects. Even though the Profit After Tax has slightly decreased in FY2018 which was due to the discontinuation of two plants, I still believe Don Sahong Hydropower Projectable to bring the group’s profit and cash flow to new heights from FY2020 onwards because Don Sahong is the group’s first foray renewable energy which may become the group’s main income generator in coming year and it is the way forward which can help the group explore more new strategic investment opportunities domestically and regionally. However, investor or trader must cautious that this company may not have enough current asset to cover its current liabilities but when comes to its interest coverage, the group overall finance is still healthy as they can pay interest on outstanding debts by using their earnings before interest and taxes (EBIT).


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Written by Stella Goh – Market Data Analyst | 12 December 2019

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