Mega First Corporation Berhad (3069.KL) Earnings Call Transcript & Summary

A very good afternoon, and welcome to Mega First Quarter 2 2025 Results Briefing. My name is John Huo from VUCA Insights. On the panelists today, together with me is Rondy Yunanda.

Hi, hello.

And our esteemed guest, Mr. Yeow See Yuen, Independent Director for Mega First.

Nonindependent.

Nonindependent. Yes. Always get this title wrong, apologies. So as usual, let's do some housekeeping first. For those of you who have joined, if you can hear us loud and clear, can you give us a 1 in the chat box, please. One in the chat box. Right, thank you. As usual, for those of you regular here, you know how the session is being run, but I would like to give a briefing for those who are here for the first time. Welcome, thank you for joining us, and thank you for taking time. Usually, what we do is Mr. Yeow will run through a concise presentation about the results by division. And usually, once we open the floor to questions, please convey your questions through the Q&A box. We will try our best to answer all questions based on division, usually starting with the largest, which is renewable, followed by the other divisions. And if we do not manage to finish all the questions on time, please do reach out to Yeow. He's ever ready and ever willing to answer your questions through e-mail, right? So Yeow, the floor is yours.

Thanks, John, and thanks, Rondy, for hosting this results briefing. Without further ado, let's move to the agenda for today. My presentation will only focused on agenda 1 and 2, like before the rest, you can refer it in our website. A copy of the slides have already been uploaded to Mega First website. So please feel free to download a copy from there. All right. On the first agenda is financial review. Okay. I've decided to highlight what is normalized, right? Because to us, from a management perspective, the normalized revenue and profit is more important. So for normalized revenue, we were up slightly, 1.2% mainly because of the acquisition of the Food Security subsidiary, CSC, which more than offset weaker resources and renewable energy revenue. The normalized PBT was down 14.6% to MYR 108 million, mainly because of weaker earnings from Resources and Packaging. And importantly, because of the MYR 8.2 million ForEx loss that we recognized in the second quarter compared to a gain of MYR 0.1 million, resulting from a stronger ringgit against the U.S. dollar. PBT of renewable is actually up 2.4% despite the translation loss from the stronger ringgit to MYR 113 million. Reported PBT fell sharper 22.8% to MYR 91 million because in addition to the factors described earlier, the higher losses came from Edenor and also there's an absence of insurance income that was recorded last year. In the current quarter, Edenor suffered gas supply disruptions as a result of the pipeline explosion in the beginning of April this year. The gas supply has been restored only in July. So the second quarter saw the full brunt of gas curtailment. All right. The normalized profit after tax and noncontrolling interest fell -- sorry, fell 11.4% to MYR 101.4 million, again, because of weaker Resources and Packaging and higher ForEx losses on a stronger ringgit. Reported PATNCI is fell at a sharp rate of 19.5% because in addition to what was described above, it was further negatively impacted by higher Edenor losses. Moving to individual division. On Renewable division, Hydro Energy sales in U.S. dollar was up 5.4%. Energy volume was up 11%, but that was partially offset by a 5.4% tariff reduction under the new concession agreement. Don Sahong's average EAF was 80.3% versus 89.7% despite the high energy volume, that's because of the addition of the fifth turbine, which because of the restriction of water flow has got a lower EAF. In ringgit terms, however, revenue was down 3.6% because of 9% translation loss. Solar revenue continues to improve, up 11% to MYR 3 million. PBT was up 2.4% to MYR 113 million because of gain in lower net royalties, net interest expense and a smaller amortization charge, which more than offset the tariff cuts and translation loss. This slide shows the water level of Pakse and the capacity factor. As you can see, the orange line on the left, the water level has been higher than the last 2 years in the first 6 months of the year. However, on the right side, the capacity factor, the orange line shows a lower EAF number in the last 6 months. And that's because of the higher capacity base, last year was only 4 turbines, this year is 5 turbines, okay? Moving on to resources. The revenue was down almost 15% to MYR 48 million, mainly because of weaker export of lime products amid rising competition. PBT is down more sharply at 35% to MYR 8.3 million as margins were further hit by higher freight and production costs because of a lower production volume. Packaging side revenue was flat. We managed to defend our revenue and market share despite the overcapacity intense competition environment, but however, PBT was down sharply, consistent with industry trends, mainly affected by price competition and a weaker U.S. dollar affecting our export sales. Okay. An overall view of the balance sheet. We spent about -- there are only a couple of things worth highlighting. We spent about MYR 94 million on CapEx. Receivable continues to improve. Collection from EDL has improved again, plus some translation loss. So it reflects actually lower receivable number. Yes, I think that's about it. Nothing much to highlight in the balance sheet side. All right. For cash flow, MYR 388 million after tax cash from operating activities, that is more than 13% more than last year, of which about MYR 192 million was deployed for investments, MYR 73 million distributed to stakeholders, including financiers and shareholders and about MYR 156 million was retained in the group in the first 6 months. This is the allocation of the MYR 192 million that was spent in the first half [Audio Gap] Trade supply chain. We will continue to focus on managing our costs and navigating this volatility in the macro environment. Overall, renewable energy will stay resilient for the rest of the year. Resources, we think is not going to get much worse. It will probably stabilize around these levels. Packaging division, we think that we have passed the low point, and we do expect some recovery moving forward into second half when compared to the first half. As mentioned earlier, Edenor with the gas supply restored, the plant is now running quite stable at about 80%, 85% utilization rate given the barring any unforeseen disruptions in the production line in the second half. We do expect a strong rebound in earnings in the second half of 2025. All right. This is the capital commitment that we disclosed. We still have a capital commitment of MYR 188 million, of which MYR 76 million is for RE is capital deployed for the Maldives project and also for our CGPP solar farm project in IPO. Packaging is MYR 64 million. This is really the remnants from the expansion that we have done in Hexachase and also Stenta, there's nothing new. There's no new investment per se. Food Security MYR 37 million. This is mainly to build the greenhouses, also continuous plantation in Malaysia and Cambodia. All right. On RE, all 5 turbines have been operational since June. The overhaul and maintenance of turbines have been completed since early June. And with the higher river flow and full capacity operating, we expect second half to improve sequentially from the first half. Profitability should remain steady, again, because of higher volume and lower royalties, which more than offset the tariff cuts. Outstanding loan as of August is MYR 87.5 million for the entire Don Sahong project, which includes the fifth turbine borrowings. On solar side installed capacity should increase from 32 to 94.5 megawatt peak by the end of 2025, upon the completion of the CGPP 51-megawatt peak solar farm in Perak plus the 11-megawatt farm in Maldives. We have recently submitted a bid for battery energy storage tender, and we will continue to pursue opportunities under the Malaysian CRESS programme. All right. This is our Tronoh. As you can see, we are maybe 60% complete, and we should complete this by the end of the year. All right. There's just more pictures. Yes, this is at Maldives. Maldives is over 5 or 6 sites, although it's only 11 megawatts. This is a snapshot of our portfolio. So upon completion by end of this year, we would have 420-megawatt total generation capacity. Moving on to resources. We do expect demand to remain weak. Competition remains intense, especially from regional players like China, but we do expect gradual stabilization of market conditions. And in the meantime, we will continue to focus on cost efficiency and expanding our customer base. Packaging division, we expect the supply-demand imbalances to stabilize, and we do expect orders to gradually recover in the second half. The new capacities that we have implemented for Stenta and Hexachase should support our medium-term growth plans despite short-term margin pressure from dilution in earnings. Okay. Edenor, with the gas fully -- with the gas supply fully restored, we do expect the earnings to turn around. And compared to first half, I think there will be significant sequential improvement in the second half in terms of share of profit or loss. All right. I'll open the floor to questions.

Thank you for the presentation, Mr. Yeow. So Rondy, you want to start.

Okay. Maybe we start off from RE again, but maybe instead of Don Sahong, we will start from solar first. So yes, so Mr. Yeow, I think the panel price has recently increased. Some renewable energy players have been saying that in the past 1 month, the module price have increased by 10% already. So going forward, how do you see this affect your solar business?

To begin with the collapse of the panel prices is not sustainable. It went down to as low as $0.08 per kilowatt. And a 10% increase means it has recovered to about $0.9 to $ 0.10. In the bigger scheme of things, if you look at the panel price 2 years ago, it was around $0.27. So I think there's more room to go up, all right? And how does it affect us, as long as we are not caught between the tender price and the panel costs, we should be fine, all right? Of course, we use -- it used to be in our favor when we tender and then buy panel prices at a lower price, that should help improve the IRR and conversely, in a rising trend, we have to be more careful in how much we tender in anticipation of possible increase in the panel costs. So it's all about matching.

Just to follow on what Rondy asked. Do you see this prolonged or what do you think it will prolong -- and actually, it's actually a China kind of dumping a reason why prices are suppressed.

Well, I mean, ultimately, it depends on how fast they expand capacity. I mean, China has been expanding capacity of solar panel by leaps and bounds, all right? And with the U.S. site pulling back on all these climate change initiatives, how will that affect the demand for solar panels worldwide has yet to be seen. The fiscal position of Europe that heavily subsidizes solar projects, again, whether they can continue to do so. But nonetheless, I think the industry will continue to grow is a question of whether the demand grows faster than the supply growth, all right? But we all know that this collapse in solar panel costs cannot be sustained. If it continues, then there will be a major shakeup in the industry.

So just to follow up with that. So basically, just now you mentioned that it used to be in your favor. So that means on your 51-megawatt that kind of -- that project is actually in your favor, is it?

Yes. to some extent.

So the IRR was better than you expect?

Slightly.

Because you projected at a higher price, but now...

Well, it didn't really make that much of a difference. I think at that time when we tender, the solar panel prices were around MYR 0.10 to MYR 0.11. And then when we got it, it's around MYR 0.09. So about 10% saving. But panel costs have dropped so much that it doesn't account for the biggest part of the cost, it used to account for like 40%, 50%, but it has dropped to maybe around 20%. So 10% savings, you are selling 2% cost.

I understand. Okay. Any more on solar?

Let me look, maybe you go first.

Yes. I think because you started off with that, maybe we go straight to BESS. Yes. In terms of -- I saw one question on the BESS just now.

BSS?

BESS.

Battery energy.

Yes, battery energy storage.

I guess the most obvious question is, I think the BESS standard is close. I suppose, in July, if I'm not mistaken, right?

31st July.

So -- and of course, we are -- supposed you are the asset layer. So how do you plan to play this as an asset player? What is your IRR target? And just now you mentioned that solar panel is no longer the large chunk of basically the cost, but we would assume that the battery module alone for BESS would be probably about 60%, 70% of the cost. Who is your perhaps battery partner? And yes, basically just trying to understand the strategy behind the tender that you just submitted?

The battery energy storage system is something relatively new in Malaysia. I think so far, what I read from the public info is Malaysia only had one in Sabah, right? And they have 1 more in Peninsular Malaysia. So this tender is the first tender, it's not going to be the last tender. There's still a lot of opportunities to grow the battery energy storage segment of the industry. And because it's so new, we have -- on our side, we have decided to partner with a very established company from China that has many years of experience in building battery energy storage and running that battery energy storage system. Of course, the CapEx compared to solar farm is very different. The business model is also very different. As you can imagine, the bulk of the cost will be on hardware, all right? There's not so much software in there. And battery prices are quite transparent. Of course, there are different grades of batteries. So we have got to pick wisely in terms of which supplier battery can last the entire 15-year period. Because the consequence of battery degradation beyond the allowed rate can be quite expensive. So Tenaga has -- in the RFP, they talk about maximum charge and discharge cycle of 6,000 cycles over a period of 15 years. And that amounts to around slightly more than 1 round of charge and discharge per day, okay? So -- and because the investment is upfront and literally, we as a developer, we have to surrender the facility to Tenaga for their use, we do not dictate when and how much they use. So in terms of the business model, a big chunk of the charges will be capacity charge, all right? That is to ensure that we can recover the cost of investments, whether Tenaga uses it or not, all right? So in Tenaga's formula, the bid price is calculated with capacity charge taking 90% weighting and a variable charge, which is a service charge taking a 10% weighting, all right, to arrive at what they call with weighted average bid price, all right? We do not know how other bidders bid, but it can potentially create an anomaly in terms of what the bid price is. So if somebody tells you, oh my bid price is, let's say, MYR 0.25, the question is how much is service variable, service charge and how much is actually capacity charge because as far as Tenaga is concerned, they only take 10% weighting of the variable charge. So if you make it very lopsided, you make the variable charge very high, then your bid price automatically becomes low. But if you calculate the total revenue that Tenaga needs to pay is actually much higher, right? So I hope this is -- this kind of thing won't be -- people won't -- people will see beyond this -- will see beyond the bid price.

I understand. Because the face value will look very big, but then you are...

Yes, because capacity -- I mean it's just like the current tariff structure, right? The maximum charge is very high, and they have revised it up to between MYR 90 to MYR 97 per kilowatt. Whereas the variable charge is reduced down to I think MYR 0.30. So depending on your usage pattern, it could result in savings in your total electricity bill or higher electricity bill.

I Understand. So in a way, maybe to simplify that when you bid for a tender, what kind of IRR rates are you looking at with this?

We are -- I mean this will be very competitive. I think all in all, they are around 30 or -- around 30, 30 plus/minus, okay, bids being submitted. And there are a lot of big players. I think The Edge reported people at Malakoff, YTL, Tenaga himself, PETRONAS subsidiary, ourselves, a lot of people actually participate in it, some go with technical partners, some go on their own but with EPC contractor support, all right? So we won't know. They don't disclose the bid price. So we don't know what the bid price is, neither do we know the breakdown between capacity charge and variable. But given there is so competitive, the expected IRR is not going to be fantastic. It's definitely single digit. I would think not more than 7%, 8%.

Okay. So a follow-up to this question is that, it will be -- correct us if it's wrong on the question I was asking that this contract structure is almost like a power purchase agreement like power plant generation. Will they be longer or shorter period, before you did mention something about the turnover to them and then they handle operations and you don't dictate, what's will be the...

It's like gas-fired power plant operator in Malaysia. So you build the gas-fired power plant more Tenaga. And will tell you how much and when to fire, right? So -- but your investment is this upfront. So you will need a capacity charge to tell Tenaga that, look, either you use me or you don't use me, you still have to pay me. But when you use me, then you have to top up with the variable service charge, you compensate me for the production cost of electricity, I got to start buying gas, I'm going to start running the machinery, I've got to do maintenance on my machinery. So it's similar. It's just that in this case, because there's very minimal...

OpEx costs, is it?

There's very minimal variable costs. The costs are largely fixed. So in the case of battery energy storage, you would assume that the majority is going to be fixed, the capacity charge. And Tenaga kind of ascribed it as 90% capacity and 10%...

I see, because it's unlike gas-fired or whatever moving parts, mechanical.

Yes, a few constitute a big chunk of my production cost. If I don't produce, I don't buy few, I don't incur expenses. But in battery, it's different. Battery is better. We charge, discharge. There's no fuel. There's nothing. There's no labor, there's basically literally nothing. It's just like putting your hand phone there, you leave it there. Do you want to charge, recharge and charge.

You're just lending the battery. I pay you for the upfront cost to build, but then you'll...

Yes, yes. So the variable, I would say, in reality is even less than 10%, but for formula calculation purposes to standardize the unit of measurement, they decided to put 90% capacity and 10% to calculate what the bid price is.

So yes. Sorry, just the last related is, is this -- compared to solar, will this be some sort of team or I think what the questionnaire is asking is that, is this something you guys will go forward with? Or is more of an experimentation for now?

No, it's something that we are very keen to develop, very keen to develop. But again, we will try to make sure that it's not a silly investments. We will try to make sure that the investment will still generate decent returns, given the circumstances. Of course, you want double digit, it's difficult.

But is it possible to raise the IRR to be above 10% if say, that leverage is applied? If yes, what will be the ideal equity to debt financing ratio?

Of course, ideally, we would like to raise the debt equity to at least 75% to -- hopefully, 75% or 80%. But realistically, whether that is possible or not is a function of how the banks look at it. Would the banks look at the service rate as part of the revenue, cash flow? Or will they only focus on the capacity charge, different banks operate differently. Based on our experience, I think that equity ratio will not be the traditional 80-20 rule. It will be probably higher in equity form because of the variable charge that the banks may not take into account for cash flow analysis purpose or for the debt calculation purposes. Based on, let's say, assuming 70-30, well, if you can generate the IRR of -- project IRR of, let's say, 8%, then technically, you can generate a return on equity of more than 10% depending on your cost of funds. So for us, I think we have the capacity to borrow relatively cheaply compared to companies that may not have the balance sheet strength to borrow the consulting.

You did mention about partnering a Chinese partner. Are they more of utility player or more of electrical generation or battery kind of equipment player? What kind of expertise are you expecting for the technology transfer know-how?

No. They own power, their own battery storage systems. They also own transmission lines and grids.

I see. So they're almost like a TNB for the lack of better word.

Some. Well, not really, but they're in that business.

Rather than just an equipment player.

They are not battery suppliers. They are not EPC contractors.

But more of an operator of assets as well?

Operator and developer and owner.

I think there is probably 3 or 4 similar kind of questions on BESS. So basically, I'm just going to lump it down into one. Basically, given the low expected 7% to 8% returns on BESS. Why are so many players attracted to the bid. What is the addressable market for BESS in Malaysia? And how does MFCB intend to differentiate itself in the BESS market, be it via technology partner, EPC capabilities, cost advantages versus other bidders?

I mean the potential is quite huge. Given that Malaysia is moving towards more renewable capacity and renewable generation capacity in the context of Malaysia, especially Peninsular Malaysia is solar. We don't have much potential for hydro. We don't have much potential on wind, neither do we have much potential on geothermal. So it will be largely based on solar. And as you know, solar is a very unsynchronized generation supply -- electricity supplier. When it's too cloudy, you don't have. When it's raining, you don't have. So -- I mean on average, Malaysia only has 4 hour peak a day out of 24 hours. So the efficiency is only around 15%, 16% of the capacity. Given this kind of scenario, assuming RE hits the target that the government wants, they definitely need to invest in battery storage. In order to store when it spikes, and then use it when there's no sun and you still -- you can slowly discharge it in the later part of the day or even at night. So I think the battery requirement is very -- is going to be very huge and it's something that we would like to develop. And we are very confident we have a very strong partner. And having a very strong partner who has multiple projects in China will at least help us to ensure cost competitiveness when it comes to procurement and also on construction as well. So hopefully, we can...

They will bring in a way the ecosystem of equipment makers and all that?

Everything. Yes, everything.

No, I was just watching TSMC Arizona plant video and they're trying to get sulfuric acid in Arizona is 5x the price of what they're getting in Taiwan. Yes, so that is something that if you have a partner who already has an ecosystem that would be quite a major benefit.

Yes, but I know there are people who partner with battery companies, for example, they are developers or partner with EPC companies. So whatever it is, is the entire supply chain you partner with players within the supply chain, all right? In our case, we are partnering with the designers and also the developers of the system. Of course, battery, we have to buy from a third party and construction civil side, we have to engage with third-party civil contractor.

You lumped all the BESS together already, right, just now right?

Yes. I think so.

Okay. Yes. So for probably one last question on solar, an attendee is asking what is the rough net margins for the recent quarter for, I think, all the solar assets that you have? I know you don't break it down because it's a consolidated.

Yes. We don't really break it down, but I would say a PBT margin of maybe around 12%.

All right. Shall we move to Don Sahong. Not much, actually. There's one here from [ Wei Yung ]. So as far as he knows, Don Sahong operates on a 24-hour day. He's wondering whether there's a difference in between the day and night rates.

No, ours is a single rate 365 days a year.

He also wants to know during the wet season, all 5 turbines will be running at full capacity or not?

It depends on -- okay, having too much water may not be good because when there's too much water, it reduces the hit, the water level hit, it means that your inlet versus your turbine hit, there must be a certain distance, all right, when it's too similar, there's little gushing power, if you like. Yes, so like right now, today, we are running at about 97%, not 100%. But occasionally, we can hit 100% for now, all right? But when it's really, really too much water, it can drop to like 92%, 93%. And so we just have to manage that process. But so far, in the third quarter looks like it won't be worse than last year's third quarter.

Not too much water?

Actually, there's a lot of water, but...

So you mentioned the water level is higher than the past 2 years. This year is too much or not?

You look at this towards the end, test the dry season, dry season, we have a lot, but...

Not as high as the...

Now, we don't know. Whether it was going to exceed the blue line or not on the left chart.

2025 the orange line, right?

Yes. But the orange line, you can see that it's always below the last 2 years, because my denominator is bigger. My denominator is 322 megawatts...

Versus 260 in the past.

And we know that during the dry season, I just don't have enough water. So it's a known fact.

But there is no like maintenance or anything in the next 2 quarters?

No, there will be -- again, the overhaul will again start in December for the next turbine. We may or may not do 2 this time around. We would like to do 1 a year, but there is a little bit, idealistic given that, by the time I reached my fourth turbine for overhaul, that fourth turbine would have operated for 9 years. So we may squeeze in -- during the upcoming dry season, how is that going to affect the generation? It's not going to be too much. It's not going to be too much as a whole.

So last related question to that is that in the new PPA, EDL only commits up to 955 gigawatt on a take-or-pay basis during the wet season. Does this reflect -- does this reflect EDL's expectation of lower demand? Or was it due to past oversupply under the old PPA where EDL had to take all the generated electricity. Therefore, they specifically drafted this new term into the PPA?

Well, I mean when we negotiated the first PPA on a take-or-pay basis, it's definitely in our advantage. So EDL is reasonably commercial and say, hey, you don't expect me to pay you if I don't take. So we say fine, but only for the fifth turbine. So they say, okay, only for the fifth turbine. So the 955 is basically the 4 turbines capacity. For the fifth turbine, we say, okay, only if you take, but we know they will take because of our proximity to Cambodia and their commitment to Cambodia of close to 700 megawatts, and we are confident our tariff of MYR 0.06 is very, very competitive versus their other sources on electricity. So they would definitely prefer to buy from us. So we are not too worried about that.

Okay. So virtually, if I were to concise it, is that even though it seems like there's a cap, and -- but the confidence level that you guys have is, they will likely take whatever that you guys are producing?

I mean so far, they have taken everything.

Got it. Rondy?

I think there is 1 or 2 listeners, who's asking to just repeat what is the revised tariff, if you can?

The revised tariff, okay, the -- basically the supplemental PPA and concession agreement resets the entire concession period. So although we had operated for 5 years, it's not been reset. So we are starting from year 1 this year, and it's going to last another 25 years. So long and short of it is effectively a 5-year extension. And the tariff is -- the levelized tariff is the same as before, but EDL has requested that we flatten it and will still give us a levelized tariff of MYR 0.0615 for the entire concession period. But because under the old concession agreement, it started off with MYR 0.0615 and it rises MYR 0.01 -- 1%, 1%, 1% for the 10 years, and then it drops 20% to MYR 0.057. So now they said, I want to flatten it. So we start with then MYR 0.06 then MYR 0.0605 next year, then MYR 6.1, then MYR 6.15, then MYR 6.2 and carry-on with MYR 6.2 for the rest of the concession period. On a level basis, on a discounted basis, it's still MYR 0.0615. So we are not losing out. But if you look at the 2-year earnings and compare, obviously, it looks like there's a reduction in tariffs because last year, we already have 4 years of 1%, 1% increase. So we were doing already -- effectively, we are doing already MYR 0.0634.

There was a peak? The tariff MYR 0.0634.

No, no, no. without a new concession, it just keeps going up.

Yes, it keeps going up. But before we revise the peak...

Okay. Because of the editing, I think the weighted average is slightly below -- I think the weighted average for last year is MYR 0.0627 or something like that. So we adjust it down to MYR 0.06 this year. So that represents a year-on-year decline of around 5%.

I guess just 3 very -- 3 other short questions with Don Sahong. Firstly is with the geopolitical conflict between Thailand and Cambodia. Is there any concern that Cambodia may not be able to service the payment to Laos and MFCB. That's the first one. Second one is any chance of sixth turbine? And the last one is, what is the time line to repay the outstanding USD 88 million loan for Don Sahong?

The conflict between Thai and Cambodia, we don't foresee having any impact on Lao. And because the energy that we sell to EDL and EDL subsequently sell to EDC is based on the G2G long-term contract where there are penalty clauses if either party do not honor their -- the terms of the agreement. So what Cambodia will do is they will take what they promised EDL. And so far, they have not defaulted. In fact, they are very prompt. We just collected USD 13.6 million last week, including the service of the restructured carved out receivable of another $900. So I don't think there's any impact. I don't think there's an impact. The trade between Thailand and Cambodia, maybe there is some impact because a lot of borders are closed, so they've got to reroute it either through shipping lines or via Cambodia -- sorry, via Laos or whatever. What's the next one?

Sixth turbine?

Not for this slide now, because you can see that -- we -- with the fifth turbine -- the fifth turbine is already running at an average EAF of 40%. So you add a sixth turbine, I think the incremental return may not justify the cost.

You had another one, last one. You had 3, right?

It was the time line to repay the outstanding Don Sahong loan?

Okay. When I talk about Don Sahong loan in this slide, I'm referring to the group loan to external third party. I'm not talking about the project companies that -- the project company that is stretched to 10 years. But at the group level, the loan is, I think, would be repaid over the next 2, 3 years.

Shall we move to the next segment?

We should. Which one do you want to start first?

I don't know first because there's a lot of questions.

Yes. I don't know. Yes. So okay, [ Wei Hung ] ask, as of July to August 2025. What's the operating condition of Edenor and looking ahead, what factors could prevent Edenor from turning profitable in the second half '25?

All right. In the past, I've always talked about plant stability, plant stability, plant stability, plant upgrade, plant modification, repair works, and we were actually about to -- we will actually -- at the end of that exercise, in the beginning of this year, but in the first quarter, we still make a lot of losses partly because we were at the tail end and partly also because we have to change catalysts. And when we change catalyst, it's a new catalyst that did not perform up to Mark. So we have to shut it down and replace with another catalyst. And we were finishing with that as well, then came the explosion on the 1st of April. So the entire second quarter, we were not able to run our hydrogenation plant, the alcohol side of things. We can only run those low-pressure manufacturing processes, like fatty acid plant. And because of this curtailment, we were still not able to turn around. But we were running. Now in July, so far, since we started ramping it up, with the gas supply in full is running stable. Other than some fine-tuning, it's running stable. But on top of this plant stability, we also have the industry issue. The industry issue is, of course, consumer sentiment slow down, overall consumption come down. There's also a lot of competition especially with Indonesian players having some cost advantage because of the export tax policy. So in other words, the margin for local players here, even though I run efficiently is lower than during the good old days. But nonetheless, we do expect as long as our plant runs steadily, we should not be making losses or much losses, and potentially, we should be able to make a little bit of profit. But it depends a lot on the available delta that we can work with, even the market condition and the competitive landscape, because commodity price will go up and down and our selling price will go and down. And the question is, what is this delta that we can enjoy. The delta used to be slightly bigger. But now because of the Indonesian policy, Indonesian players have got some cost advantage. We have to narrow down a little bit. Is this still sufficient? Answer is yes, provided you run efficiently. Once you do that, then you can still be profitable. And you don't take the wrong side of the commodity trend.

Which is the last related question, how is the CPO hedging position for the ongoing quarter?

We are -- okay, we hedge within CPO futures, but our exposure is really CPKO, palm kernel oil and palm kernel oil has diverged from CPO price. So last year, up to around beginning of the quarter last year, the CPO and CPKO price were very comparable, around MYR 3,008, MYR 3,009, but it has since diverged, CPKO price is around MYR 7,006, but CPO price is only MYR 4,000-odd. So it has diverged. And the hedging policy, there's no CPKO futures to hedge. We can use CPO futures as a proxy for hedging. So occasionally, we are exposed, not to the full extent, but to a small extent, we are still exposed. And that could swing it either positive or negative. But we are doing our best not to speculate. We are doing our best to only hedge what is needed. Today, we are slightly on the long side, but it's not much. It's only a couple of thousand tonnes. So it's not too bad.

I forgot to ask the second one. I don't know default or failed to deliver any committed orders during the gas incident in Putra Heights. If so, was there a penalty imposed? And what was the approximate value?

Okay. In fact, we have a history of nonfulfillment of orders because of the plan not being able to operate steadily. So -- but our customers have so far been pretty okay. They understand. It's just that if it is high price, then they may say, okay, if that is the case, don't delay, just cancel the order. And then we could be stuck with a naked position. So contract default is a risk to us. So that's why I say the moment that your plant can run steadily, a lot of these problems will naturally go away, all right? Because you can plan, you can take orders, you can plan, you can deliver accordingly. Still subject to cancellation and default by customers, but a lot less, rather than -- because right now, the default is mostly our side. Sorry, I can't produce, sorry, I can't deliver. And then the other side will say, oh, luckily, you cannot deliver because the price has shot up. Okay, then I cancel the order, but I'm stuck with the physical stock, right? So I have an open position. So a lot of these losses in the first quarter -- last quarter of last year and first quarter of this year is because of all this. It's because of all this. So we were caught with high physical cost, but the client have the right to cancel order if you cannot deliver based on original schedule.

Yes. That's right. That's right. Rondy?

Yes. So following up on Edenor, basically, the questions are, what is the average utilization rate for quarter 2? And what do you think would be the -- what's the average utilization rate as of this month? And will Edenor be able to do a breakeven at EBITDA or PBT level this quarter or next quarter since you mentioned that the improvements are more remarkable?

Today, we are probably -- okay, we have actually mothballed one plant, but let's exclude that. We are effectively operating at maybe around 80% to 85% right now. Second quarter with the curtailment, we were probably doing only around 50-plus to 60%. And in the first quarter, even dropped to 40% because there was a complete shutdown for a lot of changes and repair works. So that's why you see the losses start to come off as well, not as big as first quarter or fourth quarter last year. So it has improved. With today's run rate, we are hoping to be at least EBITDA positive, at least cash flow positive. Whether we can make profit or loss, it will be plus/minus small amount. It won't be fantastic until the market condition improves.

Just to sneak in one before your next one. Any chance to visit, I also want to go?

Where?

Edenor.

There's nothing to see. It's a petrochemical complex. I mean I'm sure if you want, can arrange, but there's nothing -- there's really nothing to see. What's there to see, I also don't want to see.

So I hope the anonymous attendee heard that, nothing to see, a lot of pipes, a lot of big vessels, distillation columns....

Yes. And you look at the column, we also don't know what it does.

Yes, unless someone explains it to you.

Whether it's a distillation, fractionation, hydrogenation...

No, no, maybe just guessing, maybe if he is a chemical engineer, maybe he will like it.

Okay.

Maybe, who knows.

So I guess the last one is on your cash flow, you mentioned MYR 88 billion was used for subscription in Edenor. Is there any more cash that is going to be expensed or invested in Edenor going forward?

Okay. Let me put it into perspective first, yes. When we bought over Edenor, we paid MYR 12.7 million. Out of this MYR 12.7 million, it includes fixed asset value of MYR 73 million and working capital of about MYR 170 million. So it means that the rest of it must be funded by debt. So the debt was MYR 240 million, MYR 240 million. And that debt is short-term debt. So on the onset, we are already undercapitalized and moving forward after 3-year plus, we have so far spent in total in the last 4 years, about MYR 19 million on improving plant, repair the plant, redesigned a plant. And we have also lost around MYR 200 million in total. So where is it funding from? We have to strengthen the capital base. And the third issue is when we acquire that time, prices were around MYR 3,008 levels. And since then, it has spiked to MYR 7,006 and as you know, the working capital requirement is primarily linked to the commodity price. So the working capital requirement has also shot up. And therefore, you need to have more working capital loans. So we felt that I think it's better to strengthen the balance sheet at least to pay for the capital expenditure and to absorb some of the losses while it has to be shut down for repairs and upgrade works so that the balance sheet looks more decent. Now that we have overcome all this and completed the exercise of upgrading and now that the plan has more or less running stable, I think we won't need to put in any more money in it.

So with the current strengthening of the balance sheet, you think you have provided it enough sufficient runway to at least get the plant to stabilization, productivity, the higher...

Cope with the high commodity prices. Our working capital is no longer MYR 170 million. It's MYR 250 million to MYR 300 million. So it's gone up by MYR 100 million. Where are you getting the money from?

It didn't fall from the sky, definitely. No, I think a lot of it is already answered, Rondy. Do you think we can move to -- I was thinking of sneaking a general overview question before we move on to Food Security. The first one, right at the top, this is [indiscernible] and he asked, he want to clarify some financial figures. So finance cost increased to about MYR 14.35 million from MYR 11.35 million compared to the previous quarter. Is there a reason behind it? I think he also captioned total borrowing costs increased by MYR 63 million, and then interest income decreased from MYR 5.98 million to -- from increased -- decreased to MYR 5.98 million, MYR 6 million from MYR 8.14 million from the previous quarter, despite cash on hand increased from MYR 412 million from MYR 332 million. Okay. I repeat it. I know there's a lot of numbers.

No, no, no. Let's explain -- stop at the finance costs.

Finance costs. Okay. So finance costs increased to MYR 14.3 million from MYR 11.3 million. What's the reason behind it and total borrowing cost seems to increase to MYR 63 million?

Okay. First, there was an increase in the financing charges. The financing charges is revised once a year. And the last revision was in October last year. And also, we borrow new money for a few projects that we have gone into, including the Tronoh land, including the Setia Alam land, including more loans in funding the solar projects. So it has gone up because the debt has actually gone up from that period.

Yes. So financing. Okay, done. Next one. Interest income decreased to MYR 6 million from MYR 8.4 million compared to the previous quarter despite cash on hand increased to MYR 412 million from MYR 332 million?

I think interest have actually come down in the last few months, although Fed rates have not really come down, but interest has come down faster in anticipation. So I still remember, even the FD rate used to be -- for U.S. dollar used to be around 5-plus percent. Now you can get 5 plus.3 -- probably 3 plus to 4. So that has a big impact, plus also the currency translation. The bulk of it is U.S. dollar interest and with the stronger ringgit on translation into ringgit term, there's a reduction in the interest income.

I don't know how to explain this. He just says, does holding company losses of MYR 33.86 million breakdown. Edenor is MYR 16.3 million, ForEx loss MYR 8.2 million; Food Security MYR 5 million, but there's a chunk of MYR 4 million that's still missing. Where is that MYR 4 million coming from?

Who is the guy asking the question?

[indiscernible] He must have gotten all your notes, everything.

All right. Of course, the HQ expenses is there, right? And that also includes the Food Security losses. And that also includes sometimes a little bit here, plus/minus losses. I mean, in the biggest scheme of things, MYR 1 million, MYR 2 million is nothing. It can be up, it can be down. But the bulk of the difference is, I would say, Food Security side. I think Food Security easily contribute to that difference of MYR 5 million by at least about half of it.

Food security. Okay. Last one from him. Current proposed MYR 0.0475 of dividend is not aligned with the previous dividend guideline of 10% step up. Can we assume that this guideline is no longer applied. And if that's the case, what will be the new dividend guideline?

I think we will continue to step up, but the pace of step-up we may amend it here and there. Our thinking is we are trying to conserve some cash, partly the macro environment doesn't look that great and partly also because we are preparing and hopefully, we can deliver some new projects. But in any case, we are still stepping it up. Just maybe at a slower pace.

Actually, to follow-on to that particular mark, there is basically a question, basically asking any update on the planned MYR 1 billion investment in utilities or water right that you and Chairman mentioned last quarter.

I didn't mentioned, Chairman mentioned. Nothing to announce. I've got no details to share, but the projects that I think the Chairman was referring to is still there. The company is still working on it. It's not gone, it's still there, but whether we -- I mean, there's obviously nothing I can disclose at this point in time, but the projects that we are working on, they're still there. It may take longer than what we expected, but it's still there.

That is why you're conserving some bullets, I guess.

Partly, the outlook is not good, but we also -- we are mindful of what we agree, so we will continue to step up.

Packaging or you say, any more general questions, Rondy.

Let's go for packaging.

Okay. So in -- another question from Wei Yung. Previous quarter briefing, you mentioned efforts to expand the customer base in Australia. Are there any potential new major customers? What's the percentage of capacity would they likely commit?

We are making headways for our Packaging division. That's why you don't see a drop in revenue although there is a drop in average selling price, despite a drop in average selling price, which partially accounted for the margin squeeze. And we are continuously working to expand that customer base, especially in the U.S. and Australia and also on the local domestic market.

What is the utilization rate, excluding new capacity versus the utilization rate, including the new capacity? Need to call them, hope you remember the numbers.

Okay. Our sales have gone up, in volume terms, our sales have gone up. So utilization rate based on old capacity would have gone up. But it has gone up partly also because we now have more capacity especially on the Stenta side. If you can recall Stenta was literally operating at full capacity. And now with the expansion, we have started to use the new facility to cope with our expansionary sales. On the Hexachase side, we have not yet commissioned the new capacity. So based on today's run rate, Hexachase should be operating at around 70%, 80%.

Okay. So Stenta is full on all capacity plus utilizing, maybe 10%, 20% of new?

It will take some time to talk about this.

And then for Hexachase is 70%?

70% -- yes, around 70%, 80%.

Okay. Last question related to this. He says in terms of prospect, what is the prospect actually for the Packaging business going forward?

He mentioned that the worst is over.

I mean, we are seeing some recovery in sales. Competition will remain key in terms of price competition, especially on plastic side. But on paper side, it's more stable. On certain categories, they are also quite stable. But I think volume is recovering for us. And given that environment plus what's happening on the upstream side, we don't foresee major cost pressure. So we're just handling the pricing pressure. And I think that must stabilize one day because you look at BP, 90% collapse in earnings, Thong Guan, 20% decline in earnings. So we are somewhere in between there. And I think last quarter was exceptionally bad because of the sudden strengthening of the ringgit as well. So unless ringgit strengthen again, but if it hovers around MYR 4.2, MYR 4.22, that is what happened in the last quarter, we should stabilize. So Packaging front, I do foresee some growth, and also some earnings improvement compared to the second quarter. So that's why I say second quarter, we have pivoted. We have pivoted. And hopefully, we can gradually recover from there. But will we go back to that MYR 10 million per quarter PBT, it will take some time, because we have -- once you have additional capacity, there's always immediate short-term dilution in earnings. And we will have to slowly build up the capacity utilization on the expanded capacity.

Just a direct Packaging question from Gabriel. He has a few questions on Resources as well. But just since we are on, I think, are they -- this price pressure because you mentioned lowering of your ASP volume maintains, how much cheaper are the Chinese in terms of the ASP, are they considered the main competitors? Or it's just that everyone is suffering and then -- but is the Chinese expounding the problem?

Chinese is one of the bigger reason why there's such an intense price competition, basically. I mean they are literally exporting excess capacity, not just to Malaysia, but literally to the world. And you cannot imagine what kind of prices they can charge. It's just mind-boggling. It's just mind-boggling. I don't know how they do it, whether they are subsidizing or whether they are just selling at a loss, just to save jobs, utilize some capacity and all those. I don't know.

Is there a reason or is there maybe perhaps one of the reasons is it because cost is so much cheaper there, but what it'd be?

I think Chinese players are very sizable compared to Malaysian players. I was in Indonesia 2 months ago talking to our partner in the Plastic packaging, Argha Karya. They also have a similar problem. They say, you'd be surprised how much the Chinese and Indians are moving into the country. So there are only 3 reasonable-sized players in Indonesia. You've got Argha, you've got Trias, you've got Poly Indo. So these 3 are around similar size, with Argha being a small on the 3. They're facing a lot of competition from the big Indian players and the big Chinese players, big competition. So over here, it is even more fragmented. It is quite fragmented, especially on the -- not on the upstream side but on the conversion side. So naturally, you feel the pressure now because we don't have scale compared to them. But even the raw material purchases, we are big enough, I'm sure you get a 5%, 10% advantage. And 5%, 10% is the margin.

It's the margin. I just wanted to say that.