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Management’s Discussion & Analysis

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Management’s Discussion & Analysis for the Financial Year Ended 31 December 2017


Mega First Corporation Berhad is a diversified company with three main businesses – Power Generation, Resources and Property Development and Investment.

The Power Division is the largest earnings contributor, accounting for 85% of continuing operations’ core pre-tax profit, followed by the Resources Division at 9% and the Property Division at 6%. The Group also operates several smaller businesses such as packaging products and printing of labels and stickers as well as manufacturing of automotive components. These smaller operating units are not separately disclosed as their earnings contributions are not material to the Group. Additionally, the Group has a land lease and concession project in Cambodia and intends to develop it for agriculture purposes. Earnings from agricultural activities will not be material in the short-to-medium term.


The following table sets forth a summary of the results of operations for the financial years ended 31 December 2017 and 2016:

The Group’s revenue, excluding the discontinued China operations, increased 51.6% to RM910.9 million in 2017 (2016: RM600.7 million). The increase was mainly attributable to a 78.1% increase in construction revenue of the Don Sahong Hydropower Project (the “Project”) to RM645.4 million, compared to RM362.4 million a year ago, and a 21.7% increase in revenue in the Resources Division to RM119.9 million (2016: RM98.5 million), partially offset by lower revenue from the Property Division due to the absence of development income.

Consolidated pre-tax profit from continuing operations expanded 40.3% to RM192.9 million from RM137.6 million in 2016. Pre-tax construction profit of the Project rose 79.5% to RM172.6 million (2016: RM96.1 million), while pre-tax profit contribution from the Resources Division rose 28.4% to RM19.3 million (2016: RM15.0 million). The Property Division’s pre-tax profit of RM12.5 million was flat year-on-year.

The underlying strong performance of the Group’s core continuing operations was however dampened by significantly higher ESOS expense of RM14.0 million (2016: RM2.8 million) and substantially lower forex gain of RM3.3 million (2016: RM14.4 million) resulting from the Group’s foreign cash holdings on a strengthening Malaysia Ringgit. Excluding the effects of ESOS expense and forex gain, the Group’s continuing operations would have generated a 61.7% increase in pre-tax profit to RM203.6 million (2016: RM125.9 million)

Power Division

Don Sahong Hydropower Project (the “Project”)

During the financial year, the Project achieved 30% physical completion, compared to 16.5% in the previous financial year. This brought the cumulative physical completion to 46.5% at the end of 2017 (versus 16.5% at the end of 2016), which was in line with management’s guidance. The higher percentage completion during the financial year resulted in a 78.1% increase in construction revenue to RM645.4 million.

The estimated total project cost was revised down from USD417 million to USD401 million to factor in lower estimated interest cost during the construction period and lower transmission line cost. The downward revision of project cost resulted in a cumulative positive adjustment to pre-tax construction profit in 2017 amounting to RM1.4 million. Together with a higher percentage completion achieved during the financial year, total pre-tax construction profit rose 79.5% to RM172.6 million.

Tawau Power Plant

The Power Purchase Agreement between Serudong Power Sdn Bhd (“SPSB”) and Sabah Electricity Sdn Bhd (“SESB”) (the “PPA”) expired on 2 December 2017. Consequently, SPSB has stopped supplying energy since 2 December 2017 while awaiting SESB’s decision on the proposed extension of the PPA as approved by the Energy Commission (“EC”) and the Minister of Energy, Green Technology and Water.

Revenue for 2017 rose 4.4% to RM77.8 million due to higher energy tariff resulting from a 36.9% increase in the average Medium Fuel Oil (MFO) price to RM1.60 per litre, partially offset by a 19.8% decline in energy sales volume to 153,112 MWh on shorter operating period resulting from major repair works in May, June and November and the expiry of the PPA on 2 December 2017. The higher MFO prices do not have a material impact on pre-tax profit due to a cost pass-through pricing mechanism that is in place.

Pre-tax profit fell 41.3% to RM3.7 million from RM6.3 million a year ago on shorter operating period (no revenue after 2 December 2017) while SPSB continued to incur operating overheads after the expiry of the PPA on 2 December 2017. 2016 pre-tax profit also included a RM1.0 million partial arbitration award (2017: Nil).

Resources Division

The Group’s Resources Division is mainly involved in the quarrying of limestone and the manufacturing of lime products: quicklime, hydrated lime and quicklime powder. Its products are used in a wide range of industries, and are sold locally as well as exported to various countries around the region.

The Resources Division posted a 21.7% increase in revenue to RM119.9 million (2016: RM98.5 million), bolstered by a 27.8% growth in sales of lime products to RM105.6 million (2016: RM82.6 million). Revenue contribution from other products, including calcium carbonate powder, limestone and cement bricks, was 5.1% lower at RM15.8 million due mainly to lower cement brick sales amidst a subdued construction industry.

Sales volume of lime products grew 25.7% to 320,020 tonnes on both higher export and domestic demand. Export-to-domestic sales ratio improved to 50:50% in 2017, compared to 42:58% in 2016 as the Division successfully increased its sales penetration in India, Australia, Indonesia, Singapore and Bangladesh. During the financial year, domestic demand was bolstered by higher output in the steel industry.

The average selling price of lime products was 1.6% higher mainly due to a favourable change in the sales mix between domestic and export sales, partially offset by a weaker export currency, namely US Dollar and Australian Dollar.

Pre-tax profit increased 28.4% to RM19.3 million (2016: RM15.0 million) on higher sales volume of lime products and efficiency gains.

Limestone is the main raw material for the products of the Resources Division, and all limestone used for the products are sourced from the quarries of the Group located within the vicinity of the manufacturing plants. The Division is actively sourcing and acquiring limestone reserves to secure continuous supply of good quality limestone feedstock in the long-term. During the financial year, the Resources Division added another 116 acres of limestone land reserves. While the continuous expansion of limestone reserves would be earnings dilutive in the short-to-medium term, management believes it will significantly enhance the total value of the Resources Division in the long term.

Property Division

The Group has mothballed its property development segment since 2015. Focus is now confined to selling off its remaining completed property inventory located in Melaka, Salak Tinggi and Ipoh. On the investment side, the Property Division will continue to manage its investment properties, comprising mainly the PJ8 office buildings cum commercial lots and more than 900 parking bays in Greentown, Ipoh.

Revenue from the Property Division of RM9.2 million was 51% lower when compared to RM18.7 million in 2016. The decline in revenue was due to a 93.6% decline in development income, while rental income edged up slightly to RM8.5 million (2016: RM8.3 million).

Despite the sharp decline in development income, pre-tax profit was marginally higher at RM12.5 million (2016: RM12.3 million) due to fair value gain of investment properties amounting to RM6.3 million. Although there was a fair value gain of RM8.6 million in 2016, the gain was largely offset by a RM6.7 million write off of land development cost in 2016. Pre-tax profit from investment segment was RM5.8 million, representing a 9.5% increase over 2016’s RM5.3 million.

Discontinued Operations

The sino-foreign co-operative joint venture agreement with Qixian Heat & Power Co., Ltd (“QHP”) of China (the “JV Agreement”) in relation to the power plant in China operated by Shaoxing Mega Heat & Power Co., Ltd (“SMHP”) expired on 22 October 2017 and was not extended by the Group.

Revenue of RM253.5 million in 2017 was RM61.2 million or 19.5% lower than 2016 (2016: RM314.7 million). This was mainly due to shorter operating period, after the Group’s decision not to extend the term of the JV Agreement when it expired on 22 October 2017 and declining industrial demand for steam. SMHP recorded steam sales of 2,068,105 tonnes (2016: 3,024,724 tonnes) and energy sales of 283,591 MWh (2016: 424,252 MWh) during the financial year.

Pre-tax profit was RM19.6 million, a decrease of 68.4% over 2016 (2016: RM62.1 million), mainly due to lower sales volume, higher environmental compliance costs and a RM3.2 million loss on deconsolidation, partially offset by a one-off RM4.1 million (net) tariff incentive income.


Assets and liabilities

Significant changes in key assets and liabilities during the financial year ended 31 December 2017 are explained below:

Asset/Liability ItemsAs At
As At
Property, plant and equipment (“PPE”)262,151323,51761,366PPE decreased mainly because of the deconsolidation of the China power plant operations following the expiry of the JV Agreement on 22 October 2017.

Excluding the effects of the deconsolidation, PPE increased RM70.3 million mainly due to the following capex:
  • RM14.2 million for kiln expansion;
  • RM32.8 million for additional limestone reserves through the acquisition
    of new subsidiaries;
  • RM12.2 million mainly for the expansion of flexible packaging production capacity by Hexachase Flexipack Sdn Bhd; and
  • RM8.5 million for the plantation project in Cambodia.

Depreciation (continuing operations) for the financial year was RM20.0 million.
Investment in quoted shares56,90940,31516,594There were no significant transactions during the financial year. The increase was due to changes in market values of quoted securities which were recognised as “fair value changes of available-for-sale financial assets” in Other Comprehensive Income.
Investment properties167,662149,35618,306The increase was attributable to the following:
  • Reclassification of certain completed residential and commercial units from inventory to investment property; and
  • RM6.3 million fair value gain adjustment.
Land held for property development45,09544,438657There was no significant change in land held for property development. There was no new property launches during the financial year.
Project development expenditure60172,06571,464Project development expenditure mainly captured the costs incurred and/or accrued for the Don Sahong Hydropower Project less the amount recognised as cost of sales in the calculation of construction profit for the Don Sahong Hydropower Project.
Intangible asset941,796370,391571,405Intangible asset represented the cumulative construction revenue recognised for the Don Sahong Hydropower Project.
Inventories42,28059,87417,594The decline in inventory was mainly attributable to the deconsolidation of SMHP and reclassification of certain property development units to investment property.
Receivables161,787227,16865,381Receivables decreased primarily attributed to drop in advance payment made to contractor for the Don Sahong Hydropower Project and the deconsolidation of SMHP, partially offset by higher receivables in the Resources Division and amount owing by QHP.
Deferred tax liabilities56,17633,05423,122The increase mainly related to deferred tax provision for construction profit.
Payables – current188,825133,28355,542The increase was mainly due to accruals associated with the construction of the Don Sahong Hydropower Project, partially offset by the effects of the deconsolidation of SMHP.

As a group, we maintain a group cash management system which enables us to fund the operations and expansion of our subsidiaries. We secure and maintain adequate credit and loan facilities as required at our main operating units to support our sales and manufacturing activities, working capital needs and planned capital investments, notably the Don Sahong Hydropower Project and the development of the agriculture land in Cambodia.

Group Borrowings and Debt Securities

As at 31 December 2017, the total amount outstanding under long-term and short-term borrowings (excluding hire purchase payables) was RM221.2 million. The table below sets out the salient information on our bank borrowings:

The foreign currency term loans included USD23.3 million (RM94.2 million) drawn down from the USD150 million club deal banking facilities to part finance the construction of the Don Sahong Hydropower Project.

The Group has no debt securities as at 31 December 2017.

Cash Flow Analysis

The Group generated a positive RM115.1 million after tax from operating activities during the financial year. Net cash and cash equivalent however declined RM133.8 million from RM263.1 million as at 31 December 2016 to RM129.3 million at the end of 2017, while gross borrowings rose RM126.4 million from RM88.6 million as at 31 December 2016 to RM215 million at the end of 2017. During the financial year, the Group raised RM19.6 million in capital through the exercise of Warrants and ESOS.

Cash made available from operating activities, cash and cash equivalents, borrowings and new capital totaling RM394.9 million were deployed mainly in the following manner:

  • RM312.6 million for Don Sahong Hydropower Project;
  • RM29.5 million for property, plant and equipment (please refer to balance sheet analysis);
  • RM10.0 million for acquisition of a subsidiary whose principal asset is limestone reserves;
  • RM19.3 million dividends paid to shareholders of the Company; and
  • RM18.6 million dividends paid to subsidiaries’ minority shareholders.


The Group’s major exposure to foreign currency exchange fluctuation is as follows:

Don Sahong Hydropower Project

Investment in the Project is primarily denominated in US Dollar. Following the year-end review, the estimated total project cost including interest during construction has been revised down from USD417 million to USD401 million. The cumulative investment incurred up to 31 December 2017 was about USD168 million.

The remaining sources of funds will be mainly in US Dollar, including the club deal banking facilities of USD150 million and USD53 million supplier credit.

Foreign currency exchange fluctuation will not have a material impact to the commercial merits and viability of the Project given that the investment cost and future income stream and operating expenses are denominated primarily in the US Dollar.

The fluctuation of Malaysia Ringgit against the US Dollar will however have an impact on the reported construction revenue and profit in Malaysia Ringgit terms. The translation of the US Dollar denominated subsidiary for consolidation will also result in forex gain/loss under “Other Comprehensive Income”.

Resources Division

Export sales which are denominated primarily in US Dollar and Australian Dollar, accounted for about 50% of revenue in 2017. The recent strength of Malaysia Ringgit against the export currencies will have a negative impact on export margin. To mitigate the impact of forex difference and higher input and transportation costs, management has increased the selling prices for selective customers.


The Company does not have a fixed long-term dividend policy. In deciding the dividend payout for each year, the Board considers the strength of cash flow from operating activities, the cash outlay commitments and future plans of the Group. For the financial year under review, the Company has decided to trim its dividend from a total of 5 sen in 2016 to 4 sen per share to conserve cash for the Don Sahong Hydropower Project.


The Group’s growth prospects can be found in the Chairman’s Statement.

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