MFCB recorded 1QFY25 CNP of RM64.7m (-44.4% qoq, -32.1% yoy), accounting for only 13% of our full-year forecast and 14% of consensus estimates. The results are deemed within expectations, as we anticipate a stronger 2HFY25 ahead, driven by higher energy sales for DSHP, with all five turbines resuming full operation and the onset of wet season (June–November) supporting volume growth.
The weak quarterly performance was impacted by seasonal factors and a scheduled turbine overhaul, which collectively reduced hydro output by 21.3% to 483.5 GWh.
We expect Q2FY25 earnings to remain flat, as a strengthening MYR (USD-MYR averaging 4.36 QTD vs. 4.45 in Q1) reduces MYR profit registered at DSHP where the functional currency is USD.
Post-housekeeping adjustments, we maintain our BUY recommendation with a revised target price of RM5.43 (up from RM5.36) based on a SOP valuation and is appraised with a three-star ESG rating.
Within expectations. Excluding one-off items such as unrealised forex loss (+RM1.4m), fair value loss on put option (+RM0.7m), and other items (-RM0.2m), MFCB’s 1QFY25 core net profit (CNP) of RM64.7m represents 13% and 14% of our and consensus estimates respectively. The results is deemed within expectations, as we expect earnings from 3QFY25 onwards to improve significantly, driven by higher contributions from DSHP as all five turbines become fully operational and the region enters the wet season (June-November), leading to higher energy sales volume.
QoQ. CNP fell 44.4%, driven by a 33.7% decline in PBT from the Renewable Energy segment due to seasonally dried quarter and a scheduled turbine overhaul, which reduced hydro output by 21.3% to 483.5 GWh. This was partly offset by a 46.7% increase in PBT for the Resources segment from two significant export deliveries in the quarter that were originally scheduled for 4QFY24 and an 8.9% rise in PBT for the Packaging segment due to recovering demand.
YoY. CNP declined 32.1%, primarily driven by: (i) softer demand for lime products in export markets (sales volume -15.4%) in the Resources Division (-32.8% in segmental PBT); (ii) intensified price competition, weak demand for packaging products and lower conversion value due to a weaker USD against MYR for the Packaging Division (-48.8% in segmental PBT), and (iii) the absence of insurance income from fire-damaged assets in the Packaging Division and continued losses from Edenor in the Other Division (vs RM6m in profit in 1QFY24).
Outlook. We expect DSHP’s Q2FY25 earnings to remain flat, despite lower depreciation from extended asset life under the new PPA. This is driven by a weaker USD-MYR exchange rate, averaging 4.36 (Q2 QTD) vs 4.45 (Q1), whereby the functional currency of DSHP is in USD. The Resources segment may deliver weaker earnings in the next quarter, as there were two significant exports originally scheduled for 4QFY24 delivered in 1QFY25. We anticipate gradual recovery in the oleochemical segment, with plant rectification nearing completion, which should lead to improved earnings contribution in quarters ahead.
Earnings revision. Maintained.
Valuation & Recommendation. Following reconciliation with annual report figures, we maintain our BUY recommendation with a revised TP of RM5.43 (from RM5.36), based on a SOP valuation and a revised three-star ESG rating (down from four-star). The ESG revision was mainly due to a drop in the scoring for Environment assessment. We favour 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, and (iii) strong balance sheet and cash flow position, reflected by a net gearing ratio of 0.22x as of 1QFY25 and robust operating cash flow of >RM500m/annum.
Risks. Appreciation of MYR against USD, increase in petcoke prices, and a slower-than-anticipated recovery in the packaging segment.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.214000 | 4.246402 |
EUR | 4.933065 | 4.941517 |
CNY | 0.592554 | 0.593580 |
HKD | 0.540322 | 0.544498 |
SGD | 3.273088 | 3.298512 |