Rising Geopolitical Risks Will Disrupt Southeast Asia Renewables

Key Takeaways

• Over-reliance on key hydropower assets and exposure to geopolitical and regulatory risks threaten earnings stability and increase revenue volatility.
  
• Intensifying competition, climate-related operational challenges, and reduced government support may compress profitability and erode long-term growth prospects.
  
• Stable renewable energy revenue, strong financial health, and ongoing expansion in clean energy and diversified sectors position the company for sustained growth and resilience.

Catalysts

Engages in renewable energy, resources, and packaging businesses in Malaysia, Lao PDR, other ASEAN countries, Papua New Guinea, India, Bangladesh, Australia, New Zealand, and internationally.

• Mega First faces mounting risks from rising geopolitical instability and trade tensions across Southeast Asia, which could disrupt cross-border renewable energy projects and supply chains, leading to higher capital costs, construction delays, and ultimately stalling growth in revenue generation over the medium to long term.
  
• As renewable markets in Southeast Asia mature, the gradual phase-out of government incentives and subsidies threatens new project economics and could severely compress profitability, sharpening competition and putting sustained downward pressure on net margins and return on investment for future solar and hydro projects.
  
• The company's continued over-reliance on the Don Sahong Hydropower Project exposes it to severe concentration risk; any operational or regulatory disruptions-such as adverse changes in hydrological patterns or tightening government controls in Laos-could cause pronounced revenue volatility and threaten earnings stability for the entire group.
  
• Intensifying competition from new renewable energy entrants, especially as technology costs decline, is likely to erode Mega First's market share and force aggressive bidding and pricing for new projects like the Malaysian Battery Energy Storage Scheme, further squeezing project IRRs and diminishing long-term earnings potential.
  
• The increasing frequency of extreme weather events and worsening hydrological variability driven by climate change represent a persistent operational risk that may undermine the reliability and output of Mega First's hydro assets, resulting in unpredictable cash flows and undermining the long-term stability of group earnings.

Mega First Corporation Berhad Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mega First Corporation Berhad compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mega First Corporation Berhad's revenue will decrease by 8.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 22.8% today to 31.6% in 3 years time.
• The bearish analysts expect earnings to reach MYR 435.4 million (and earnings per share of MYR 0.46) by about August 2028, up from MYR 405.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, up from 8.4x today. This future PE is greater than the current PE for the MY Renewable Energy industry at 8.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.66%, as per the Simply Wall St company report.

Mega First Corporation Berhad Future Earnings Per Share Growth

Risks

• Long-term power purchase agreements and stable renewable energy revenue streams underpin consistent cash flows for Mega First, with solar and hydropower output set to increase due to new capacity additions and supportive national energy policies, which support revenue and profit stability.
  
• Secular demand for clean energy in Southeast Asia remains strong, with the company pursuing additional projects under Malaysia's National Energy Transition Roadmap and being shortlisted for Battery Energy Storage tenders, which could drive future top-line and EBITDA growth.
  
• Mega First has demonstrated strong cash generation and a healthy balance sheet, reducing net debt and maintaining low gearing, which positions it to weather industry downturns and invest into acquisitions or expansions, thus protecting shareholder value and supporting potential dividend growth.
  
• The company is actively addressing operational issues in loss-making units such as Edenor, with management expressing confidence in a turnaround and return to profitability as gas supplies normalize and plant upgrades take effect, which would reduce losses and improve net income.
  
• Sustained investment in efficiency improvements, geographic and segment diversification-including the growing food security and retail segments-provides resilience against sector-specific headwinds, supporting longer-term revenue growth and reducing risk to overall group earnings.

Valuation

• The assumed bearish price target for Mega First Corporation Berhad is MYR3.68, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Mega First Corporation Berhad's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MYR5.8, and the most bearish reporting a price target of just MYR3.68.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be MYR1.4 billion, earnings will come to MYR435.4 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of MYR3.61, the bearish analyst price target of MYR3.68 is 1.9% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.