April 02, 2023

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MFCB Results Update (Q2 FY21)

Analysis
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Pix Source : AsiaNews
MFCB did very well and exceeded my expectations. This is primarily due from Don Sahong and it is a result of its higher Energy Availability Factor (EAF) at 95.2% due to higher water levels. This is remarkable no less as usually the wet season is between June to November. Don Sahong contributed revenue of RM 138 million which is 21% higher than immediate Q. (I am comparing to immediate Q as YoY wise, it far exceeds). 

True enough, the impact was seen in the resources division due to MCO lockdown and container freight issues. Higher cost of materials also impacted the margins for the packaging divisions where cost cannot be pass through entirely to customers due to the competitive market landscape. In addition, revenue was impacted as well due to slower demand resulting from MCO. 

That said, the good news is the next QR we will see immediate contribution from Stenta, their new acquisition and recognition of its profits into the overall of the company. The growth via M&A using their strong cashflow which is very smart of the management. Whilst I often do not advocate debt funded growth, I can see the current net debt level have come down significantly to RM 420 million due to their ever increasing cash position which is now RM254 million and operating cashflow at RM274 million. It is remarkable to say the least.

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"Coupled with Stenta acquisition, I believe we will see another record year from MFCB. If last year it is undervalued, it would mean the company is more attractive this year considering their growth prospect. "


The management guided next QR the EAF would reduced due to longer scheduled turbine maintenance work but will pick up in Q4. They indicated it would even exceed FY 2020 to performance which translates naturally to the bottom line. 

The company also declared dividend of 3.25 sens for this quarter. It is still insignificant in terms of yield but at least the management is still paying out despite its M&A and lowering of its debt. In my own calculation, they only need about another 2 years to become a net cash company provided they do not embark on other M&As or new projects.

MFCB did indicate they are hopeful for the construction of the 5th wind turbine. In the event that starts, it would serve as another catalyst for the group. All in all, the investment thesis for MFCB remains intact.

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Author of "Once Upon A Time In Bursa", please click MPH Bookstore / Popular Bookstore / Shopee

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This  information should not and cannot be construed as or relied on and (for  all intents and purposes) does not constitute financial, investment or  any other form of advice. Any investment involves the taking of  substantial risks, including (but not limited to) complete loss of  capital. Every investor has different strategies, risk tolerances and  time frames. You are advised to perform your own independent checks,  research or study; and you should contact a licensed professional before  making any investment decisions.
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