Mega First Corporation Berhad - Earnings in Line, Outlook Remains Positive
Fri, 22-Nov-2024 07:16 am
by Tan Sue Wen • Apex Research

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MFCB (3069)

Target Price (RM)

5.00

Recommendation

Buy

Summary

  • MFCB reported a 3QFY24 core net profit of RM118.0m (+17.6% qoq, +14.1% yoy). 9MFY24 CNP at RM314.0m came within expectations, representing 78.3% of our full-year forecast.

  • We anticipate stronger quarters ahead, mainly supported by depreciation of MYR against USD, which should translate into better earnings from DSHP.

  • Maintained our BUY recommendation with an unchanged target price TP of RM5.00 based on SOP valuation.

     

Results Review

  • Within expectations. MFCB’s 9MFY24 core net profit of RM314.0m (+29.0% yoy) came in within our expectations at 78.3% of our forecast of RM401.1m, but only at 69.7% of consensus FY24 earnings estimates of RM444.8m. 

 

  • QoQ. Excluding one-off items such as fire insurance claims (RM7.2m) and unrealized forex loss (RM13.4m), 3QFY24 core net profit added 17.6% qoq to RM118.0m, attributed to stronger PBT contributions from the Renewable Energy segment (+18.5% qoq) and the Resources segment (+8.1% qoq), which offset a decline in the Packaging segment (-17.4% qoq) and the rise in share of losses in associates (+92.5% qoq) from plant shutdowns for the oleochemical joint venture, Edenor. Notably, despite lower tariffs due to appreciation of MYR against USD, Renewable Energy segment notched a stellar growth qoq on the back of greater hydro energy income from increase in energy output following the commissioning of the fifth turbine at Don Sahong Hydropower Plant (DSHP) and rising water levels. 

 

  • YoY/YTD. 3QFY24 core net profit increased 14.1% yoy to RM118.0m, driven by better PBT contribution from the Resources segment (+147.3% yoy) on the back of higher sales volume and more favorable sales mix, and from Renewable Energy segment (+6.3% yoy), supported by an additional 15% effective equity interest in DSHP, higher solar energy sales, as well as greater hydropower output as mentioned above. 9MFY24 core profit jumped 29.0% yoy to RM314.0m as a result of aforementioned reasons.

 

  • Outlook. We anticipate earnings growth momentum to continue in 4QFY24, on the back of depreciation of MYR against USD, hence improving contribution from DSHP. Notably, MYR has depreciated 8.3% from RM4.12/USD in 30 Sep 24 to RM4.46/USD as of 21 Nov 24. Nonetheless, Packaging division is expected to remain challenging due to weak consumer sentiment and overcapacity globally. Meanwhile, oleochemical business could continue to experience losses in the coming quarter but is expected to turnaround in 2025 as Edenor nears the end of its rectification efforts. 

 

  • Earnings revision. No change to our forecasts.

 

  • Valuation. We maintain our BUY recommendation and target price (TP) of RM5.00, based on a Sum-of-Parts (SOP) valuation. We like MFCB for its (i) defensive earnings profile, with ~90% of PBT contributed by recurring income from the Renewable Energy segment, (ii) commitment to pursue growth to enhance shareholder value, whether through organic growth, inorganic growth, or even venture into a new business segment, and (iii) strong balance sheet and cash flow position, with net gearing of 0.10x as of 3QFY24 and operating cash flow of above RM500m/pa.

 

  • Risks. Appreciation of MYR against USD, higher-than-expected petcoke prices, and a slower-than-anticipated recovery in the packaging segment. 

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