My Investment Record (27) - 29th February 2016 & 31st March 2016

Market Overview

KLCI end flat at  end of February  at 1661.98. However,  following recovery of oil price and the sign that Fed is slowing its pace of raising interest rate, klci advance to 1717.58 at end of March. 

Current Return and performance

For February 2016, 

The estimated holding period return for KLCI in the past period (1st February 2016 - 29th February 2016) is -0.49% (with dividend included). Holding Period return for my portfolio, is -0.97%. Total holding period return for my portfolio since the inception is -3.76%, annualized to be -1.09%, this is far lagged behind KLCI total return of 13.14% (annualized, 3.59%) 

For March 2016, 

The estimated holding period return for KLCI in the past period (1st March 2016 - 31st March 2016) is 4.09% (with dividend included). Holding Period return for my portfolio, is 1.84%. Total holding period return for my portfolio since the inception is -1.99%, annualized to be -0.56%, this is far lagged behind KLCI total return of 17.77% (annualized, 4.67%) 

Trading Activities

1. Selling of  Berjaya Toto (1562), latest quarterly earning turn out to be weaker than expected, coupling with the weakening earning trend following implementation of GST, i decided to sell out realizing a small profit while waiting for the right price to back in.. 

2. Addition of MFCB (3069) through right issue, the electricity selling price for Don San Hong turn out to be 6.15 cent/kwh, results in revenue higher ($120 million) then initially estimated. (read here) It will be a good value adder in the long run, the only short term risk however is the project risk. 

3. Addition of MNRB (6459), it remain a tough year for MNRB as its reinsurance business suffer heavy claim and had to made large provision for foreign claim liability. However as in re-insurance business with higher volatility of earning, i will expect its earning to quickly bounce back. 

3069 Mega First Corporation Berhad (Undervalued)

The research note in Public Invest pretty much summarize what my current thought. Interesting readers can read it here. I just like to share my thought on the new project - Don Sahong Hydropower Project undertake by the company.

Few Key Notes:
1.  This is a hydro power plant with fairly reliable electricity output. Coupled with the fact that the PPA is of take or pay type. Revenue for the company will be fairly stable and predictable.

2. The actual selling price of the electricity per kwh is undisclosed. My guess will be $5c /kwh, based on the average unit cost in Laos in 2009. (source)

3. Once built up, the major component of the cost will be
a) yearly repayment to long term debt
b) Annual O&M cost, the most likely to go up. Estimate is about 2-2.5% of the total installation cost.
(Source)
c) Depreciation charge, assuming linear depreciation.
d) Corporate income tax, currently 24% in Laos.

The net cash flow to the company, will then be profit after tax + depreciation charge.

4. Financing Structure. MFCB average return on equity is about 10%, higher than the typical rate for long term corporate bond. Given the stable nature of its revenue stream, the best option is to finance large part of the project using short term and long term debt (USD bond if revenue is fixed in USD term). which can go up to 90% of the financing requirement.

Estimation Results:
I made a few set of assumptions on major factors that could affect the PV valuations, these factors include:
a) the total CAPEX of the project
b) Annual generated unit of electricty
c) Capacity degradation of the hydroplant, either due to change in river flow rate or aging of generator.
d) Unit price of electricity
e) Adjustment rate of electricty
f) Long term debt interest rate
g) Opex,

with assumptions and results as below picture.

I haven't run a sensitivity analysis yet but the bigger uncertainty will be on electricity unit sale price and loan interest rate. Nevertheless, based on the mid-case, it seems the current share price (RM 2.5) is a good bargain compared to the valuation you will get.

However, do be mindful that as one of its power plant PPA is expiring at end of 2017 (2018?), there will be period where Its profit & cashflow will dropped, before its picked up again.

Disclaimer
The data above was taken and calculated according to information supply from the company's announcement, quartery report and annual report available at the Bursa Saham website, there is some element of estimation in deriving the figure. 
The author bear no responsibilities of any buying/selling action of the investor, and any profit/loss incur by the investor.

The author had ownership in the stock covered.