Mega First powers on

MEGA First Corp Bhd is one of the few unique companies listed on Bursa Malaysia by virtue of its sprawling business.

The conglomerate made a name for itself by building a massive hydropower plant in Laos – a risky move many foreign investors avoid – and has been enjoying the financial rewards for years.

The group has also ventured into other distinct business segments and frontier markets.

It has coconut and macadamia plantations in Cambodia and operates solar projects in Malaysia, Cambodia and the Maldives. Other segments in Malaysia include limestone manufacturing, packaging and healthcare, with plans to build a hospital in Selangor.

Listed on the Main Market of Bursa Malaysia since 1990, Mega First now trades at a price-to-earnings ratio of 8.27 times, giving it a market capitalisation of RM3.98bil.

Bloomberg data shows four research houses giving the stock a “buy” call, with two more having a “hold” call.

The group’s hydropower plant in Laos contributes about 90% of profits. The Don Sahong hydropower plant which commenced operations in 2020 after years of planning, is a 325MW power plant that has a power purchase agreement (PPA) with the energy utility company of Laos.

Non-independent and non-executive director Yeow See Yuen expects the renewable energy (RE) division’s earnings to remain resilient due to long-term PPAs that help to insulate it from the impact of the ongoing tariff war.

“The RE segment is expected to remain the largest revenue and profit contributor to the group, as management intends to continue investing in this division,” he tells StarBiz 7.

In 2024, Mega First secured a five-year extension to its Don Sahong concession, resetting the 25-year term to begin on Jan 1, 2025. This followed the commissioning of the plant’s fifth turbine.

Under the revised terms, its 95%-owned unit, Don Sahong Power Co Ltd (DSPC), will pay the Lao government US$82.5mil upfront in lieu of annual royalties. Income tax will be 5% in 2026 and gradually rise to 24% by 2030.

The tariff structure will start at six US cents per kWh in 2025, progressively rising to 6.2 cents by 2029, with the levelised rate maintained at the previous rate of 6.15 cents.

Yeow says these agreements provide a “strong foundation for stable revenue streams” and shield Mega First from the typical risks that come with operating in Laos.

Drawing from its experience in Laos, the group is also “actively exploring” other hydropower opportunities.

“The Mekong River system, which spans multiple countries, holds vast hydro energy potential and serves as a critical RE resource for the region. We view this as a strategic area to expand our RE footprint,” he adds.

The group has also been expanding its solar portfolio, which now stands at 32.1MW of solar capacity in Malaysia and Cambodia.

Another 62.4MW of solar capacity is under construction, consisting of an 11.4MW project in the Maldives, and a 51MW project in Perak under the Corporate Green Power Programme. Both are targeted for completion in 2025.

Mega First had aimed to add 15MW to 20MW of commercial and industrial solar projects a year. However, Yeow says the group is moderating its pace and is shifting its focus to other local-government led RE initiatives, like the Corporate Renewable Energy Supply Scheme and Battery Energy Storage Systems (BESS).

“The group was recently shortlisted as a pre-qualifying developer for BESS in Malaysia,” he says.

Its quarry business is expected to post “satisfactory earnings” in 2025, despite softer demand for lime products in the region. Yeow notes while the segment will not be directly affected by tariffs, it could be impacted if trade tensions trigger a global slowdown.

In contrast, Mega First’s packaging segment faces greater US tariff risks, given its exposure to the US market, accounting for about 8% of sales revenue in 2024.

Even so, Yeow points out the business appears to be getting more enquiries and orders from the United States.

The packaging division saw a 12.9% year-on-year drop in pre-tax profit for financial year 2024 (FY24), dragged by margin pressures amid overcapacity, intense competition and weak demand.

“These challenges are expected to persist throughout FY25. Management will continue to focus on expanding its customer base, improving customer service and enhancing cost efficiencies,” Yeow says.

The packaging business specialises in eco-friendly packaging solutions and is increasing production.

“Given the weak economic environment, it will take time to ramp up these new facilities. The company will continue to focus on expanding its customer base both in Malaysia and export markets to support growth,” Yeow says.

The food security division, focused on coconut and macadamia plantations in Cambodia and greenhouse farming in Malaysia, is not expected to contribute materially to group earnings in 2025 and 2026.

The group is expanding its coconut sap business by acquiring a 30% stake in Chiwadi Products Co Ltd, a Thai food and beverage company specialising in natural health products derived from coconut flower sap, with the deal expected to be completed by May.

“We plan to become a key supplier of coconut flower sap to Chiwadi and leverage their platform to develop new applications for coconut flower sap and expand export markets,” he says.

In the longer term, Yeow says the company plans to halt acreage expansion and focus on nurturing existing coconut and macadamia trees to full maturity, with revenue expected to rise steadily over the next five to 10 years.

Currently, about 10 acres of greenhouse crops are planted, with plans to add 30 acres in Johor and Perak.

In the oleochemicals segment, Mega First’s undertakings have faced several bumps with the pressure of slow global demand and increased competition. Most recently, it was significantly hit by the gas pipeline leak in Putra Heights.

The plant is operating at sub-optimal levels due to the gas supply interruption, at between 30% and 70% of capacity. “These levels are substantially below breakeven, primarily due to the high fixed costs,” Yeow says.

The company is still assessing the financial impact. Given the scale of the disruption, the losses are expected to be significant for the group, Yeow notes, adding that the oleochemical business is expected to remain loss-making in the first half of 2025 (1H25).

“Assuming normalised gas supply and stable plant performance in 2H25, we are cautiously optimistic the segment can return to profitability,” he says.

Despite the setbacks, the group does not intend to exit the oleochemical business, and remains optimistic about long-term prospects.

“We have invested RM70mil to upgrade and repair the plant. Over the past 18 months, significant improvements were made. We are confident the business will return to profitability once gas supply stability and volume are fully restored in 2H25,” Yeow says.

The company has a healthy balance sheet and strong liquidity, giving it headroom to pursue other expansion opportunities.

It is, however, “exercising extra caution” in evaluating new ventures, amidst a period of heightened uncertainty.