Tuesday, July 24, 2007

Mega First, The Undiscovered Gem

Mega First Corporation Bhd (MFCB) is an investment holding company engaged in power generation, property development, manufacturing and quarrying. Through its 60% owned subsidiary, Shaoxing Mega Heat and Power Co Ltd, MFCB owns and operates a power plant in Shaoxing, China, with electricity and steam generating capacities of 42MW and 290 tonnes per hour respectively. The company also owns and operates a power plant in Tawau, Sabah.

Meanwhile, MFCB is also involved in developing residential properties, namely Taman Bertam Jaya in Malacca and Taman Mawar in Sepang, Selangor. The company also undertakes commercial development in Ipoh. Through its subsidiaries in Malaysia, UK and South Africa, MFCB is engaged in the engineering, designing and manufacturing of automotive and transport components and the manufacturing and trading of security seals. Lastly, the company undertakes quarrying activities and is involved in the manufacture of quicklime, hydrated lime and calcium carbonate products via its 99.6% owned subsidiary, Syarikat Cheng Sun Quarry Sdn Bhd and its 38.5% owned associate, Rock Chemical Industries (Malaysia) Bhd.

Power earnings is driving the company and the kicker is the upcoming Laos power project. Mega First is considering taking in a partner to undertake the proposed RM1.05 billion hydroelectric project in Laos given the huge cost involved. The Laos plant is expected to supply power to the Thailand, Cambodia and Vietnam power grids due to its location in southern Laos. It would be set up on a build, operate and transfer basis for a 25 to 30 year concession period. Mega First had already signed a memorandum of understanding with the Laos government for a 240mw hydroelectric power plant along the Mekong River. The feasibility studies are being finalised with a report to be out very soon. Though operating in places such as Cambodia or Laos could be deem as risky, and may explain why there are not many institutional followers of the stock: not many are aware that the controlling shareholders (Goh family) have been running a huge beer brewing and distribution business from Cambodia for the longest time. Hence its like operating from their backyard.

Another kicker is the potential reactivation on its 50:50 copper mine JV with Australian mining company Perilya Ltd in Ranau, Sabah. The copper mine project had had been shelved some five to six years ago as world copper prices then did not make it feasible. With the current high prices, feasibility studies would be undertaken on setting up a mine in Ranau.
Based on just 236m shares, the company is expected to register a net profit of RM58m in 2007 (it recorded a net profit of RM46.1m in 2006). That works out to an EPS of 24.5 sen. You can do the math, its really simple. A stock that already garners more than 63% of its earnings from power sector should be rated more like one. NTA per share is a solid RM1.47. The attraction of the upcoming Laos plant will put that power earnings ratio even higher. Looking for RM2.50 by year end.


Anonymous said...

I would think so too.


sahamgurl said...

Thanks for this idea, it looks promising, I remember I missed out on Eden. Anyway, do you mind sharing how you arrived at our target price of RM2.50 for this?

Salvatore_Dali said...

forward PER on smaller regional power plays at 8x, plus the kicker of Laos project which should be profitable, just concerned on financing side... don't want to see company buying back shares ... gearing is under utilised at 0.4x

sahamgurl said...

thanks salvador!
Volume suddenly surged yesterday and prices went up about 13%, wow..your blog really moves the market!
btw, do you think this is a syndicate stock?

Salvatore_Dali said...


i don't recommend syndicate stocks, not that i know of, most of the stocks recommended may move in a couple of days or a couple of months, e.g. rbland, sapuracrest, uemworld, coastal, epic, etc... there are dogs also such as n2n , so all is fair, .. pls don't associate my blog with syndicate plays

sahamgurl said...

Oh, that's not what I meant at all Salvador! I was just curious..as someone asked me that..

No worries, I love reading your blog and so far most of your recommendations have been really good.


Douangdi said...

The Don Sahong dam project in Laos is a project that the Lao people strongly oppose, as the dam will block fish migrations from Laos to Cambodia and negatively impact the lives of hundreds of thousands of people.

If this project goes ahead, it will face fierce opposition from local people, as well as people in the neighbouring countries of Thailand and Cambodia, which will also be negatively impacted by the project. It will be the first mainstream Mekong River dam ever built outside of China, and so will have many serious negative impacts.

Therefore, investors should be warned that investing in this project is very risky. It is not a good investment.

pureland said...

Dearest Mr Dali

On Tuesday, July 24, 2007, you have posted Mega First, The Undiscovered Gem.

Is this GEM ready for polishing ?
The positive landscape that you have commented still very much intact ? Your comment is highly appreciated.

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