Mega First Corporation Bhd
Hold. Target price: RM4.80
MEGA First’s valuation gap with utility peers has narrowed in recent months with share price having appreciated by 31% YTD. The stock’s risk-reward now appears balanced, in our view, with near-term earnings-accretive events priced-in to some extent.
Construction of Don Sahong’s 5th turbine is progressing well, with expected commissioning in July 2024. Revised terms for the concession agreement (for all 5 turbines) have been finalised, and is pending formal approval by the Laos government by mid-2024. We do not expect any deterioration in terms. We expect Don Sahong’s contribution to group earnings to increase in FY24 from both the contribution of the 5th turbine and Mega First’s increased effective stake (from 80% to 95%). Note that the tax holiday for Don Sahong is slated to expire in Oct 2025.
There remains ample balance sheet headroom for new projects, in our view. In the pipeline are possible non-RE ventures into 1) farming: 2 entities (Mega First Agrotech and Mega First Green Farms) were incorporated in FY23 and 2) hospital: Mega First purchased a 1.3ha piece of land designated for a medical centre in Setia Alam for RM44 million in Feb 2024. On the RE front, Mega First continues to work towards progressively raising its solar capacity.
Mega First has been opportunistic with acquisitions in 2021, initially acquiring packaging film manufacturer Stenta, and subsequently buying (through a JV) Emery Group’s Malaysia oleo and specialty chemicals operations.
We revise our FY24/25/26 net profit forecasts by 0%/+17%/0% respectively as we now assume Don Sahong to begin paying taxes in Oct 2025 (from Jan 2025 previously).
HOLD with a higher SOP-based TP of RM4.80.