Mega First Corp Bhd has made it on the award winner’s list of The Edge Billion Ringgit Club for the fifth year running, as the utilities company’s expansion strategies across three business segments — energy, oleochemicals and packaging — bear fruit.
Except for 2019, when it beat sectoral peers only on shareholder returns during the period in review, Mega First has won two awards every year since 2018, with the other being for highest growth in earnings over three years.
Despite the pandemic, the group smashed its own annual net profit records for three consecutive years from the financial year ended Dec 31, 2019 (FY2019) to FY2021.
Beginning with the completion of its Don Sahong hydro power plant project below cost in FY2019 — which pushed its profit after tax (PAT) to RM153.67 million from RM129.27 million in FY2018 — Mega First’s FY2020 results were supercharged by energy sales from the power plant in Laos, doubling its bottom line to RM321.29 million that year.
In FY2021, its PAT jumped further to RM462.33 million on revenue of RM914.67 million, boosted by its 50%-owned oleochemicals joint-venture unit Edenor Technology Sdn Bhd, which it had invested in in 2021.
Mega First’s earnings last year shored up the risk-weighted three-year PAT compound annual growth rate (CAGR) to 52.9%, bagging it the highest growth in PAT over three years award among utility sector players.
Concurrently, Mega First’s share price stood at RM3.72 as at March 31, 2022, up by a CAGR of 26.4% from RM1.84 on March 29, 2019, again providing its shareholders with the highest returns over three years in the sector.
The growth trend continues this year. In 1HFY2022, Mega First’s net profit rose 13.39% to RM182.18 million, from RM160.66 million, led by the additional earnings from the packaging segment. Revenue rose 50.48% to RM604.25 million, from RM401.56 million.
In the period, the group’s earnings came from renewable energy (85.54%), the packaging segment (8.97%), resources segment operating the largest commercial quicklime production in Malaysia (4.07%), and others (1.4%).
Seen to boost FY2022 is the full-year contribution slated from its 75%-owned flexible packaging film manufacturer Stenta Films (M) Sdn Bhd.
Stenta’s acquisition is one of many steps in Mega First’s five-year expansion plan in the packaging segment.
The plan, executed in 2021-2025, includes increasing production capacities of paper bags and flexible packaging this year, the completion of a new factory in Melaka in 2023, and Stenta’s capacity expansion by 1H2023.
The packaging division had already recorded its best financial results last year, representing the group’s second-largest segment by income ahead of the resources division.
Meanwhile, FY2022 will also include the full-year performance of the oleochemical business Edenor.
To be sure, the FY2021 results include RM125 million in one-off unallocated bargain difference on the acquisition of the group’s new venture.
That said, Mega First booked RM8.2 million in share of profit from Edenor in 1HFY2022, pointing to a successful start. The goal is to continue to look for efficiency improvements by 2024, and to improve PBT margins to between 5% and 10%, from 2% as at 1QFY2022.
In May, Mega First also stepped further into the semiconductor space through the RM5.56 million acquisition of a 28.83% stake in Integrated Smart Technology Sdn Bhd (IST). The company, which is involved in automated test machines for the semiconductor sector, churned out a better-than-expected RM3.5 million net profit in 2QFY2022 (or around RM1 million to Mega First based on its equity portion), according to analyst reports. A public listing could be in the works in the next two to three years, the reports say.
Expansion aside, Mega First’s crown jewel is the renewable energy segment that operates the Don Sahong hydro plant. The segment may churn higher reported earnings due to the strengthening of the US dollar where 90% of its sales collection is derived from, offset by higher interest expenses on the ongoing US Federal Reserve rate hikes.
Additionally, the construction of its fifth turbine on-site is progressing according to schedule, with completion targeted sometime in 3QFY2024, Mega First adds.
One headwind is the elevated fuel prices, which has put pressure on the resources division’s margins through 1H2022 and likely into the second half.
“Management will continue to progressively review its pricing and customer portfolio strategies to defray further production cost increases while defending sales volume,” it says in its latest results.
Moving forward, Mega First has laid out clear plans across its slew of operations. With the risk of economic slowdown ahead, it would be interesting to see if the company can continue to maintain its impeccable growth momentum.