Mega First Corp Bhd
(Sept 17, RM2.24)
Maintain outperform call with an unchanged target price of RM3.14: Mega First announced that it has entered into a 25-year concession agreement with the government of the Laos People’s Democratic Republic whereby it will be granted the rights to build, operate and transfer the development of a 260mw hydropower plant.

The project, which is expected to begin commercial operations in early 2020, will cost about US$500 million (RM2.12 billion). We welcome this long-awaited news as the project can now finally kick off by the end of this year.

The 260mw hydropower project, which is an 80:20 joint venture between Mega First and the Laos government, is located in the Hou Sahong Channel of the Mekong River, in Khong District, Champasak Province, Laos.

It generates about 2,000 GWh of electricity per year and the electricity will be sold to Electricité Du Laos under a power purchase agreement to be executed later. Management expects the hydropower project to be fully commissioned by early 2020.

The group is planning to use a combination of internally-generated funds and long-term debt to undertake the US$500 million project. Besides that, it can also monetise its 20.5 million treasury shares and RM40 million quoted share investments.

Once commercial operation begins, the hydropower project is expected to generate an 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. It will also help ease the concern about 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. — PublicInvest Research, Sept 17

This article first appeared in digitaledge Daily, on September 18, 2015.