KUALA LUMPUR: Public Investment Bank (PublicInvest) has increased its earnings forecast by 6.0 per cent for Mega First Corp Bhd for the financial years 2024 and 2025 (FY23/FY24), reflecting the additional core earnings contribution from the Don Sahong Hydropower project.
Mega First announced yesterday that it is raising its shareholding in the 260MW Don Sahong hydropower project in Laos from 80 per cent currently to 91.25 per cent for a total consideration of US$85 million (RM396.9 million).
"Based on our rough calculation, the 11.25 per cent increase in stake would likely contribute an additional 6.0 per cent to our FY24–25F core earnings forecasts," it said in a note today.
The proposed acquisition is not subject to the approval of any regulatory authority or shareholders and is expected to be completed by the end of 2023.
The purchase consideration will be funded via a combination of bank borrowings, internal cash flows, and cash at the bank.
"Financially, the proposed acquisition should not be an issue for Mega First in view of its low net gearing position of 0.02x with a strong cash holding of RM596.6 million, coupled with strong annual operating cash flows of RM500 million," PublicInvest said.
The research house said that based on the estimated funding cost of 4.5 per cent in Malaysia and lower minority interest, the additional 11.25 per cent stake would likely see earnings accretion to the company starting in FY24F.
"Based on our back-of-the-envelope calculation, the proposed acquisition price tag for the additional 11.25 per cent stake values the entire hydropower project at RM3.5 billion, which is even higher than the current market capitalisation of the company," it added.
It said that investors who buy the shares at current prices are getting the resources, packaging, and oleochemical businesses for free.
"As such, we maintain an outperform call with a new target price of RM5.28 after raising our valuation for the renewable energy segment," it added.