KUALA LUMPUR: It has been almost three years since Mega First Corp Bhd (MFCB) entered into the oleochemicals business and one analyst is asking if it is nigh time for it to exit.
Public Investment Bank (PublicInvest) research in its note today said the persistent technical disruptions due to the old designs and lack of maintenance in the past as well as a volatile hedging policy have resulted in a challenging position for the oleochemical business.
"We understand that there is a three-year exit strategy between the joint venture partners, which will expire this year. Ultimately, it needs to stabilise the plant capacity utilisation and achieve breakeven level before deciding on the next move," the note said.
MFCB and 9M Technologies Sdn Bhd jointly incorporated a 50:50 joint venture company called Edenor Technology Sdn Bhd, which acquired Emery Oleochemicals (M) Sdn Bhd and Emery Specialty Chemicals Sdn Bhd on Nov 1, 2021.
For the first quarter ended Mar 31, 2024, Edenor contributed RM13.9 million in losses to MFCB, which posted a net profit of RM95.5 million on RM313.5 million revenue.
The company experienced significant capacity loss from plant stoppage for maintenance cum repair and upgrading works amid a challenging operating environment.
Meanwhile, PublicInvest research expects MFCB's agriculture-based earnings to increase by leaps and bounds with potential earnings contribution of more than 30 per cent to the group in the next five years.
MFCB recently announced that the food security division will be its fourth core business.
It currently comprises of 1,830ha of coconut and 730ha of macadamia plantation in Mondulkiri, Cambodia, 1,100 acres of fruit and vegetable farm land in Johor (5 farms) and Pahang (1 farm).
The research house said currently, the wholly-owned Cambodian plantation registered small losses while an effective 40 per cent-owned farming business under CSC Agriculture Holdings made a small profit.
For the Cambodia business, Mega First Corp has decided to focus on harvesting flower sap from coconut trees and refining it into coconut sugar products via a Thailand-based industry player.
PublicInvest said the coconut plantation reached commercial scale maturity this year.
"It is estimated that the food ingredient product could potentially generate annual turnover of RM200 million, subject to the yield performance," said the research house in a note today.
For Malaysia, it has initiated a pilot project for modern greenhouse farming of clean leafy vegetables on a 12-acre land (1 greenhouse = 2-4 acres) in Johor and currently suppliesto Singaporean market in order to meet the high standard requirements.
PublicInvest research said MFCB paid RM75.4 million for a plot of 688 acres in Tronoh, Perak with 200 acres catering for Corporate Green Power Programme and LSS4 solar projects with Pekat Group.
"The remainder will be used for food security to set up modern agro tech vegetable farms, comprising green houses and facilities.As such we maintain outperform call with an unchanged target price of RM5.36," it added.
Meanwhile, the new concession and power purchase agreements for Don Sahong Hydropower project are expected to be concluded soon while the commencement of the 5th turbine is timely ahead of the upcoming wet season.
On the other hand, the limestone manufacturing plant in Gopeng, Perak is currently running at a production capacity of 500,000 mt per year with utilisation at 70 per cent.
Given the stabilisation of pet coke cost at USD150/mt (makes up 70 per cent of its cost of sales) and softer shipping cost, Mega First Corp's lime product exports to India and Australia have become favourable.
"Operating with weak margins over the last decade, the resources-based margin has finally normalised to above the 20 per cent level. We expect resources segment to hit record earnings this year," said PublicInvest.