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Management’s Discussion & Analysis

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Management’s Discussion & Analysis for the Financial Year Ended 31 December 2018


Mega First Corporation Berhad is a diversified group of companies with three main businesses – Power, Resources and Property.

The Power Division was the largest earnings generator, contributing 90% of Group pre-tax profit of continuing operations in 2018. This was followed by the Resources Division at 9% and the Property Division at 6%. The investment holding companies and the Group’s other smaller businesses incurred a combined loss of RM10.5 million in 2018 (2017: loss of RM19.3 million).

The Group’s smaller businesses which are not individually disclosed comprised the manufacturing of packaging products, printed labels and automotive components. Additionally, the Group has 50-year land use right on 6,419.93 hectares of land in Cambodia for coconut and other agricultural development. The agricultural project is still under development and is not expected to contribute to Group earnings in the short to medium term.


The following table sets forth a summary of the results of the Group’s continuing operations for the financial years ended 31 December 2018 and 2017:

Excluding discontinued operations, the Group’s annual turnover expanded by 4.9% to RM874.1 million. The increase was mainly attributable to an 18.6% increase in Resources Division, a RM10.8 million increase in construction revenue and higher contribution from other businesses (mainly from the increase in sales of printed labels and packaging products).

The Group registered a pre-tax profit of RM197.4 million in 2018, a 6.6% increase from the previous year. The improvement in pre-tax profit was underpinned by a 3.2% increase in construction profit of Don Sahong Hydropower Project to RM178.1 million and lower losses by investment holding and other businesses, partially offset by a 3.6% decrease in the Resources Division and a marginal decline in contribution from the Property Division.

Losses from investment holding and other businesses fell RM8.8 million to RM10.5 million mainly as a result of a RM13.6 million decrease in ESOS expense to RM0.4 million and higher gain from quoted investments, partially offset by lower foreign exchange gain.

Power Division

Don Sahong Hydropower Project (the “Project”)

Don Sahong Power Company Ltd, an 80%-owned subsidiary of the Group, is currently developing a 260 MW run-of-river hydropower project situated on one of 17 major channels on the Mekong River in southern Lao PDR. A 25-year BOT Concession Agreement was signed with the Government of Lao PDR in September 2015, followed by a Power Purchase Agreement with Electricite Du Laos (EDL) in October 2015.

During the financial year, the Project achieved 32.5% physical completion, against 30% in 2017. This brought the cumulative physical completion to 79.0% at the end of 2018, from 46.5% at the end of 2017.

Despite a higher percentage completion, construction revenue expanded only by 1.7% or RM10.8 million to RM656.2 million (2017: RM645.4 million) as higher percentage completion was partly offset by translation loss. The average RM:USD exchange rate in 2018 was 6.1% lower than that in 2017.

Pre-tax construction profit however rose at a slightly faster rate of 3.2% to RM178.1 million (2017: RM172.6 million), bolstered by a RM3.2 million positive adjustment in 2018 following a USD1 million downward revision in the Group’s project cost estimate.

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 pulverized quicklime. Its products are used in a wide range of industries, and are sold locally as well as exported to various countries around the region.

Revenue of the Resources Division rose 18.6% or RM22.3 million to RM142.2 million (2017: RM119.9 million), fueled by a 22.7% growth in sales of lime products to RM129.6 million (2017: RM105.6 million). Revenue contribution from the other products came in at RM12.6 million, representing a decrease of RM1.8 million from RM14.4 million achieved a year ago mainly due to lower sales of calcium carbonate powder.

Sales volume of lime products rose 24.9% year-on-year. Both the domestic and export markets registered healthy growth. The average selling price of lime products however declined 1.7%, mainly as a result of a 6.1% weakening of the US Dollar against the Malaysia Ringgit.

Despite higher sales revenue, the Resources Division posted a 3.6% decline in pre-tax profit to RM18.6 million as margins were adversely impacted by a stronger Malaysia Ringgit against the US Dollar, higher input costs (mainly due to a sharp increase in petcoke fuel costs) and an increase in logistic and packaging costs resulting from higher crude oil prices.

Property Division

The Group has suspended all new property development projects since 2015 due to the weak domestic property market while it focuses on selling off the remaining completed property inventory located in Melaka, Salak Tinggi and Ipoh. At the end of 2018, total unsold inventory stood at about RM11 million. 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 to generate recurrent rental income.

Revenue of the Property Division was marginally higher by RM0.3 million at RM9.5 million (2017: RM9.2 million) due to higher development revenue. Two units of properties were sold in 2018 versus only one unit in 2017. Pre-tax profit remained fairly stable for 2018 at RM12.3 million (2017: RM12.5 million), which included RM6.4 million fair value gain on investment properties (2017: RM6.3 million).

Discontinued Operations

The Power Purchase Agreement (“PPA”) between Serudong Power Sdn Bhd (“SPSB”) and Sabah Electricity Sdn Bhd (“SESB”) had expired on 2 December 2017. Efforts by SPSB in 2018 to extend the PPA was not successful as SESB disagreed with the proposed new commercial terms approved by the Energy Commission and the Ministry of Energy, Green Technology and Water.

The sino-foreign co-operative joint venture agreement in relation to our China power plant (operated by Shaoxing Mega Heat & Power Co., Ltd (“SMHP”)) expired on 22 October 2017 and was not extended by the Group due to the increasingly stringent environmental policies which would render the extension commercially not viable.

Therefore, the results of both SMHP and SPSB were presented in the financial statements as discontinued operations. No revenue was recognised from the two discontinued power plants in 2018 (2017: RM331.2 million). Loss before tax of RM7.8 million comprised mainly RM13.9 million impairment charges on SPSB fixed assets and spare parts inventory, RM16.7 million additional provision for decommissioning and site restoration of the Tawau power plant, RM9.8 million impairment charge on receivable from Qixian Heat and Power Co. (“QHP”) in relation to the China power plant, partially offset by RM31.6 million income from SESB arising from the final arbitration award and settlement.


Assets and Liabilities

Significant changes in key assets and liabilities during the financial year ended 31 December 2018 are explained below:

Asset/Liability ItemsAs At
As At
Property, plant and equipment (“PPE”)287,392260,00827,384PPE increased by RM27.4 million primarily due to capital expenditures of RM56.6 million for the following purposes:
  • RM37.1 million incurred by Resources Division mainly for kiln expansion;
  • RM10.2 million spent on expanding flexible packaging production capacity; and
  • RM8.1 million incurred for plantation development activities in Cambodia.
Partially offset by:
  • Depreciation and amorisation charges of RM16.4 million for the period;
  • Impairment loss of RM10.5 million on Tawau power plant; and
  • Asset disposal/write off amounting to RM2.9 million.
Intangible asset1,635,027941,796693,231Intangible asset represented the cumulative construction revenue recognised for the Don Sahong Hydropower Project.
Investment properties177,212170,1177,095Investment properties increased primarily due to fair value gain and reclassification of certain development units from inventories to investment properties.
Inventories (non-current) 43,44345,095(1,652)Decrease due to reclassification to investment properties.
Investment in quoted shares43,24756,909(13,662)The decrease was due to a decline in market values of quoted securities.
Inventories (current)64,23042,28021,950Increase was mainly attributable to an increase in petcoke fuel stock by the Resources Division.
Receivables93,101159,491(66,390)Receivables decreased mainly attributed to the followings:
  • Realisation of RM42.7 million advance payment (recorded as prepayment) paid to EPC contractor, Sinohydro in the form of deduction from progressive billing issued by Sinohydro during the financial year ended 31 December 2018; and
  • Decrease in RM22.9 million owing by QHP (China power plant) and a customer in Australia.
The above is partially offset by an increase in prepaid term loan interest of RM3.8 million.
Deferred tax liabilities88,34256,17632,166Additional deferred tax provision was primarily made for construction profit recognised in 2018 and cumulative fair value gain on investment properties following the 2019 Budget announcement. Under the 2019 Budget, capital gains tax on investment properties sold after 5 years was increased from 5% to 10%.
Payables (current)286,995188,70898,287The increase was mainly due to accruals associated with the construction of the Don Sahong Hydropower Project and provisional costs for decommissioning and site restoration of the Tawau power plant.

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 at our main operating units to support our expansion, investment and operational needs.

Group Borrowings and Debt Securities

As at 31 December 2018, total borrowings (exclude hire purchase) amounted to RM598.7 million (31 December 2017: RM221.2 million). The table below sets out the salient information on the Group’s bank borrowings:

The increase in total borrowings since 31 December 2017 was mainly attributable to the drawdown of RM365.5 million club-deal loan facilities to part finance the construction of Don Sahong Hydropower Project.

Interest rate on the Group’s bank borrowings are wholly floating in nature.

The interest rate on foreign currency term loan has been partially hedged by an interest rate swap.

The Group has no debt securities as at 31 December 2018.

Cash Flow Analysis

The Group generated RM38.6 million cash from its operating activities during the financial year ended 31 December 2018.

In the same period, the Group spent RM412.6 million on investing activities comprising mainly RM370.2 million on Don Sahong Hydropower Project and RM49.8 million capex on plant expansion. These investments were funded primarily by borrowings and internal funds. Consequently, the Group’s bank borrowings (excluding bank overdrafts) increased RM376.9 million to RM591.9 million (31.12.2017: RM215.0 million) while cash and cash equivalents decreased RM7.2 million to RM122.1 million (31.12.2017: RM129.3 million).


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. The cumulative investment incurred up to 31 December 2018 was about USD256.9 million.

The remaining sources of funds will be mainly in US Dollar, including unutilised balance from the US Dollar club-deal loan facilities of USD38.9 million and deferred payment credit of USD53 million from the EPC contractor.

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 DivisionExport sales of lime products which are denominated in US Dollar and Australian Dollar accounted for about 53% of revenue in 2018. The revenue exposure to foreign currency fluctuation is partly hedged by US Dollar denominated input cost (mainly petcoke) and freight charges which accounted for 40% of lime products’ cost of sales.


The Company does not maintain a fixed long-term dividend policy. In deciding the dividend payout for each year, the Board considers the strength of the Group’s 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 maintain its dividend payout at 4 sen per ordinary share to conserve cash for the Don Sahong Hydropower Project.


The Group’s prospects and future plans can be found in the Chairman’s Statement.

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