This article first appeared in The Edge Financial Daily, on October 20, 2015.
Mega First Corp Bhd
(Oct 19, RM2.55)
Maintain outperform with an unchanged target price of RM3.14: Mega First Corp announced last week that its 80%-owned Don Sahong Power Co Ltd had awarded a 50-month US$320 million (RM1.35 billion) engineering, procurement, construction and commissioning contract to China-based Sinohydro Corp, the world’s leading company that specialises in hydropower construction.
The construction is expected to kick off by the end of this month, after securing all the necessary approvals. As this project requires a relatively huge amount of funding, we expect fundraising exercises to be undertaken soon.
Under the contract terms, Sinohydro Corp will be responsible for developing, constructing and commissioning the 260mw Don Sahong hydropower project in the Hou Sahong Channel of the Mekong River, Laos over the next 50 months.
The project, which is expected to start commercial operations in early 2020, will be able to generate about 2,000gw hours of electricity per year.
Sinohydro is a well-established infrastructure construction company in China with expertise in a wide range of infrastructure projects, including water and hydropower facilities.
The notable hydropower projects that it has been involved in are the Three Gorges hydropower project in China and the Bakun hydropower project in Sarawak.
Once commercial operation begins, the hydropower project is expected to generate annual revenue of US$120 million or nearly double its current annual revenue.
It could potentially boost our sum-of-parts-based valuation by at least RM1.
In addition, it will also help ease the concern of not being able to renew its power purchase agreement for its power plants in Sabah and China, which will expire in 2017 and 2022 respectively.— Public Invest Research, Oct 19