Renewable Energy Projects In Malaysia Will Expand Clean Power Potential

Key Takeaways

• Accelerated growth in renewable energy and battery storage strengthens revenue predictability and positions the company for long-term resilience in clean power markets.
  
• Diversification into food security, plantations, and packaging provides recurring income and supports earnings stability despite short-term margin pressures.
  
• Margin compression, weak demand, asset concentration, and rising costs are pressuring profitability, with low-return projects and currency risks threatening future earnings and equity returns.

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's increased long-term focus on renewable energy-expanding hydro generation capacity (with all 5 Don Sahong turbines operational), scaling solar (targeting 94.5 MWp by end-2025), and pursuing battery energy storage projects-positions it to capitalize on greater regional demand for clean power and supportive government policies, pointing to higher revenues and more predictable cash flows as these assets come online.
  
• Strategic entry into battery energy storage-a segment set for rapid growth in Malaysia due to the intermittent nature of solar and government decarbonization initiatives-could create new high-barrier revenue streams and improve long-term earnings resilience, with potential to enhance margins through scale and strategic partnerships.
  
• Increasing capital commitments to new RE projects in Malaysia and the Maldives, coupled with strong operational cash flows and disciplined project selection, strengthens Mega First's balance sheet and enables ongoing growth investments, which should support long-term EPS growth and justify higher valuation multiples.
  
• Stable offtake agreements for hydropower (e.g., 25-year extension for Don Sahong with fixed tariffs and government-backed buyers) mitigate revenue volatility, offering downside protection for earnings while the business diversifies; successful refinancing and deleveraging further improve net margins over time.
  
• Diversification into food security, plantation, and packaging-while facing near-term margin pressures from competition and cost headwinds-provides a foundation for recurring income and lower earnings volatility, setting up optionality for margin recovery and top-line growth as these markets stabilize and expand regionally.

Mega First Corporation Berhad Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mega First Corporation Berhad's revenue will decrease by 7.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.8% today to 34.2% in 3 years time.
• Analysts expect earnings to reach MYR 477.6 million (and earnings per share of MYR 0.49) by about August 2028, up from MYR 405.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as MYR422.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, up from 8.1x today. This future PE is greater than the current PE for the MY Renewable Energy industry at 8.2x.
• 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 9.72%, as per the Simply Wall St company report.

Mega First Corporation Berhad Future Earnings Per Share Growth

Risks

• Increasing competition from China and other regional players is driving down average selling prices in both the Resources and Packaging divisions, causing significant margin compression and risking sustained pressure on net margins and long-term earnings.
  
• Prolonged industry overcapacity in the packaging and lime resources segments, combined with weak demand and higher production/freight costs, has led to sharp declines in profitability, particularly in the Resources division (PBT down 35%) and continued risk of unattractive returns.
  
• Tariff reductions and a revised, flatter concession agreement for Don Sahong hydropower have resulted in a year-on-year decrease in effective tariffs (~5% drop), with limited near-term potential for upside pricing and an overreliance on a single asset creating medium-term earnings concentration risk.
  
• Renewable energy project returns, particularly in new areas like battery energy storage systems (BESS), are facing intense competition, resulting in expected low-single-digit (7-8%) IRRs; as more capital is allocated to these low-return projects, there is a risk of suppressed future group returns on equity and slower EPS growth.
  
• Currency volatility (e.g., stronger ringgit vs. USD) and rising group finance costs due to increased borrowing for new projects have negatively impacted profitability and could continue to pressure net profit and cash flow if global rates remain high or the ringgit strengthens further.

Valuation

• The analysts have a consensus price target of MYR4.812 for Mega First Corporation Berhad based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be MYR1.4 billion, earnings will come to MYR477.6 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of MYR3.5, the analyst price target of MYR4.81 is 27.3% higher.
  
• 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.