Mega First Corporation Berhad (3069) MFCB

Business Summary:

Mega First Corporation through its subsidiaries, builds, owns, and operates power plants. It also involves in the engineering, design, and manufacture of components for automotive, transportation, building, and security industries. The company also engages in quarrying limestone, and manufacturing and trading of fine calcium carbonate powder and lime based products. In addition, it engages in the property management and development operations; and trades in building and construction materials, and food and beverages. Further, the company provides maintenance services for power plants, management consultancy services, and secretarial services. It operates in the People's Republic of China, Malaysia, the United Kingdom, and South Africa. Mega First Corporation is based in Kuala Lumpur, Malaysia.

Power Division

Mega First Corporation currently owns two power plants, one at Shaoxing China (60%), another one at Tawau (51%). The power division contribute 90% of the net income for 2006 financial year.

Property Division

Mega First Corporation is also involved in developing residential properties, namely Taman Bertam Jaya in Malacca and Taman Mawar in Sepang, Selangor. This division also joint venture with IJM in the "PJ8" project (beside the Federal High Way, near to PJ Hilton). This division also involve in the shophouse project at Greenhouse, Ipoh.

Engineering Division

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. (This division remain weak, internal restucturing exercise in progress)

Limestone Division

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.


Financial Performance:

Years 2002 2003 2004 2005 2006 Average
ROE 12.58 11.84 11.78 11.17 14.65 12.40 > 10
ROA 4.46 4.49 4.32 4.58 6.78 4.92< 10

Total Liabilitiees : Equity = 34 : 66
D/E Ratio = 0.11
P/E Ratio = 7.01
DY = 3.6
Average Revenue growth rate = 32.54% > 10 (5 years)
Average Earnings growth rate = 18.35% > 10 (5 years)


Supporting Value:

1. NTA (as at 30/9/2007) = RM1.48 > RM 1.38 (current price as at 27/12/2007)

2. Share buyback starting from March of 2007 until present.

3. The management level staff especially the director level of MFCB constantly increasing or acquired their shares in MFCB.

4. MFCB constantly come out with Employee Share Option Scheme in year 2007.

5. MFCB have a strong management team who have experience background in utility, property & other field. (can also refer to the strong ROE)

6. RM100million cash on hand. (rich cash flow)

7. Pickup in the property sector.


Upcoming Project:

1. Mega First Corporation 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.


2. Mega First Corporation was also reactivating feasibility studies 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.


Project Risk:

1. The Don Sahong dam project in Laos is a project that the Laos 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.
www.worldfishcenter.org/resource_centre/DonSahong-final.pdf

2. The reactivating of the copper mine cost RM349 million. It will be a huge investmen & burden for the corporation.


Conclusion:

Mega First Corporation is a company which recover from a huge dept 4 to 5 years ago. The corporation currently achieve a 5 years ROE of above 10%, with a healthy cash flow. It had showed a high effeciecy of the management team. This is one of consideration as a fundamental investor. The stability growth of the power, limestone and property divisions, Mega First Corporation will achieve a good result in the coming year. (Especailly the property division, PJ8 will be launch by mid-end of 2008 & the upcoming projects, assume that the power division contribution remain the same). As a conclusion, Mega First Corporation is a undervalue stock in the current market.