KUALA LUMPUR: Mega First Corp Bhd has obtained the approval of its environmental impact assessment (EIA) for its proposed 260MW to 380MW hydroelectric dam in Laos’ Mekong River, said executive chairman Goh Nan Kioh.

He told a press conference after the company AGM that the EIA for the Don Sahong hydroelectric dam was approved last month, after almost seven years.

“The Don Sahong dam is a run-of-the-river [RoR] hydroelectric dam, which means it does not require the construction of a massive dam to retain water like the Bakun dam. Therefore there will be minimal impact on the environment in terms of land flooding. On our side, there is less construction risk,” said Goh.

“In the EIA, only 11 families will have to be relocated. The main concern of the EIA was the impact on fish migration, and we have addressed these concerns.

“Another advantage of the Don Sahong dam is it will have a firm capacity of 90%. In comparison, the Bakun dam has a firm capacity of 50%,” he said, citing 100 years of hydrology data from the river.

The proposed dam is located near the southern-most point of Laos, near the Cambodian border in an area known as Four Thousand Islands. Roughly 100km to the northwest, lies the golden triangle where the Thai-Cambodia-Laos borders meet.

Goh: The power business just isn't very sexy for investors.

“The maximum capacity of the dam we can build is 380MW but our research has shown that a 260MW is the optimum,” said Goh.

Mega First is close to signing a power purchase agreement (PPA) with the Laos government for a 30-year concession, he said, and will generate roughly US$100 million (RM313 million) in net profit per year for the group.

“We are using an internal rate of return [IRR] of 13% as a basis of comparison to draft the PPA. However, I expect the IRR to be much higher,” said Goh, citing the dam’s high expected power yield.

Laos has an energy shortage and excess capacity can always be sold to Thailand, he said.

The PPA will be the last major regulatory hurdle for the project. Once it is signed, the group will be able to go to the market for financing and tender the construction, said Goh.

He said Mega First plans to have 25% to 30% equity in the project with the rest financed by debt.

The group’s cash pile stood at RM159.2 million as at Dec 31, 2011. However, Goh said Mega First could easily dispose of some assets to bring that figure closer to RM200 million.

He declined to disclose the dam’s construction and financing costs.

“It depends on which currency we want to borrow in and we haven’t decided yet. If we borrow in US dollars, it may be cheaper but there will be a foreign exchange risk,” he said.

Mega First does not have a partner for the project, and unless the Laos government wants a stake, Goh said the group is not looking for a partner.

The project is expected to take four years to complete from ground breaking, which Goh hopes will happen by the end of next year. When it is completed, he said, the Don Sahong dam will be the No 1 source of revenue for the group.

The group recorded net profit of RM112.57 million for the financial year ended Dec 31, 2011, a 13.45% improvement from the previous year. Revenue rose some 16% to RM610.5 million.

The group’s power generation segment accounted for almost three quarters of its revenue and income. Geographically, China was the biggest contributor, making up 54% of Mega First’s revenue.

The group’s improved earnings have been attributed to modifications to its power plant in Shaoxing, China, which have boosted efficiency. The Shaoxing power plant has been very profitable, said Goh, but noted it is dependent on the textile industry in the area.

He noted that Mega First’s concession for its power plant in Sabah expires in 2017. He expects the concession to be renewed as there is still an energy shortage in Sabah.

Mega First’s net operating cash flow in FY11 was RM102.89 million, up 5.6% from the previous year.

The group’s other segments, resources and property accounted for 14% and 7.2% of its revenue, respectively.

“The limestone business [in the resources segment] continues to do very well and we will continue to grow it. On our property business, we will focus more on property investment and less on property development,” said Goh.

On a side note, he said the group plans to acquire a total of 40ha of plantation land in Cambodia. It has already secured about 10ha and is considering planting rubber trees.

Mega First closed unchanged at RM1.65, which translates into a valuation of 5.1 times FY11 earnings and 0.66 times book value.

“The power business just isn’t very sexy for investors. Unlike a tech company where investors can dream of huge returns, power is just a formula. You can calculate the expected returns, it’s very safe,” said Goh when asked about the poor valuation of Mega First’s shares.

Mega First paid out a dividend of nine sen per share for FY11, or 27% of earnings per share.

Yesterday evening, Mega First announced pre-tax profit of RM29.34 million for 1Q, a decline of 16.3% from RM35.040 million in the same quarter of 2011.

In a filing with Bursa Malaysia, the group said this was mainly due to lower contribution from the property division and non-operating items.

However, the company posted a 14.9% increase in revenue to RM150.33 million in the period reviewed from RM130.793 million previously.


This article appeared in The Edge Financial Daily, May 22, 2012.