MFCB: Earnings Continued to Rise

Result Update

For QE30/6/2020 (2Q2020). MFCB's net profit rose 41.7% q-o-q or 266.1% y-o-y to RM81.3 million while revenue rose 12.8% q-o-q or 14.0% y-o-y to RM181.3 million. Revenue rose 14.0% y-o-y mainly due to RM130.4 million energy sales revenue (2Q2019: Nil) and higher contribution from Packaging & Labels Division (up 31.0% to RM21.6 million), partially offset by the absence of construction revenue (2Q2019: RM100.2 million) and lower sales reported by the Resources Division on Covid-19 impact (down 30.4% to RM26.6 million). 

Pre-tax profit jumped 224% y-o-y underpinned by a RM93.7 million pre-tax profit from energy sales (2Q2019: RM0.6 million loss) and RM1.7 million contribution from the Packaging & Labels Division (2Q2019: RM0.3 million loss), which more than offset the absence of construction profit in the current quarter (2Q2019: RM26.9 million) and lower profit contribution from the Resources Division.

Profit after tax surged 289% to RM95.3 million (2Q2019: RM24.0 million) on 224% increase in pre-tax profit and lower effective income tax rate. Income from energy sale in Laos is exempted from income tax in its first five years of commercial operations, whereas in 2Q2019, a 20% deferred tax was provided for construction profit during the construction period of the Don Sahong.

  
Table: MFCB's last 8 quarterly results

 
Graph: MFCB's last 28 quarters' P&L  

Financial Position

As at 30 June 2020, MFCB's financial position is weak with current ratio at 0.40 time and total liabilities to total equity at 0.54 time. The extremely low current ratio is a serious concern as the group used short-term borrowings to finance its non-current assets- the bulk of which is likely to be the cost of constructing the 260 MW Don Sahong hydropower project in Laos. 

Valuation

MFCB (closed at RM7.04 yesterday) is now trading at a trailing PER of 12.4x (based on last 4 quarters' EPS of 56.75 sen). At this PER, the stock is deemed fairly valued.

Technical Outlook

MFCB has fully recovered from its sharp selldown in March, which saw the share price plunged to RM3.10. It made an all-time high of RM7.18 in early May and another all-time high of RM7.35 in early August.

 
 Chart: MFCB's weekly chart as at August 19, 2020 (Source: Malaysiastock.biz) 

Conclusion

Albeit its weak financial position, MFCB is a good stock for long-term investment based on good financial performance, fair valuation and positive technical outlook.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.