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

A very good afternoon, ladies and gentlemen. Welcome to the Quarter 3 2025 Mega First Corporation Berhad Quarterly Results Briefing. My name is John Huo from VUCA Insights. I'd like to introduce my co-host, Rondy.

Hi, everyone.

And the guest of honor, as usual, Mr. Yeow See Yuen, Director of Mega First. For those of you first time dialing into this session, just some housekeeping. First and foremost, can you hear me loud and clear? If you can, please give me 1. If you can see the slides on the presentation being presented to you, please give us 1 as well either in the Q&A box or either in the chat box, please. Thank you. All right. Wonderful. So normally, how these sessions are being run will be -- Mr. Yeow would be giving us an overview presentation of the results. and this will be followed by Q&A. The Q&A, as usual, it will be because of the variety of businesses that Mega First has, we will try to group the questions based on the divisions they have, usually starting with the biggest division, which is the Energy division, followed by the other divisions. So please type in your questions into the chat box. We will try to answer all of them before the cutoff time of 4:30 today, okay? With that, I'd like to hand over the floor to Mr. Yeow. Please go ahead on your presentation. Welcome.

Thanks, John. Thanks, Rondy. Welcome, everyone. I will -- as in the past, I will present based on the following agenda. First, to look at the financials and then followed by the prospects. And as in the past, I would update the information on each and every division. But that's for your reference, you can download a copy of the slides from our Mega First website. I think it should be uploaded by now. If not, then it will be uploaded very shortly. Okay. Moving to the first agenda. In third quarter, I will normally talk about normalized earnings so as to give you a flavor of how the underlying operations are doing, stripping out the exceptional and one-off items and also associate contributions. Normalized revenue was flattish at MYR 374 million because strong growth of packaging was outweighed by revenue decline in Renewable Energy and Resources. However, the normalized PBT was up 12.8% to MYR 145 million, mainly because of improving performance of the renewable energy and packaging. And also, there is a reduction of ForEx losses that was incurred last year compared to a small gain of MYR 0.6 million this year, and that partially offsets the weaker earnings from resources. PBT of RE rose 5% to MYR 137 million. However, the reported PBT was only up 3.6% to MYR 131 million, mainly because of the absence of a 1 year -- of last year's one-off insurance income and also higher share of losses from joint venture and associate, principally Edenor. Again, like in the past few quarters, Edenor continued to suffer from very weak market conditions, low plant utilization and also a stronger ringgit. All right. This chart shows -- this table shows the reconciliation between the normalized profit after tax and noncontrolling interest to the reported PATNCI. As you can see, the major items are share of loss in JV and associate and there's a small amount of construction profits, which we treated as exceptional. So the normalized PATNCI rose 11.2%, underscoring the strength of the group's core divisions. Moving specifically to division. We start off with the RE division. For the third quarter, the EAF remained strong from Don Sahong, which resulted in a 1.4% increase in energy volume to 673.4 gigawatt hour during the quarter. Don Sahong average EAF showed a slight increase to 93.8% versus 92.5% last year, bearing in mind that for both periods, we base the EAF on 5 turbines. Revenue, however, declined slightly 4.6% because of a stronger ringgit, resulting in some currency translation loss and also a 1.3% reduction in the weighted average tariff rates following the implementation of the new supplemental PPA from 1st January 2025. Solar was up 26.5% to MYR 3 million on higher installed capacity and PBT overall was up 5.1% to MYR 137.3 million. All right. This one shows the water level of Pakse, which is an indication of how much energy available that we can provide to EDL. And the right chart is the EAF during the year and for the current period. Moving to Resources division. Revenue was actually down quite sharply, 21% down to MYR 47.5 million because of softer demand of quicklime in the region, especially as a result of very stiff competition from regional players, in particular from China, supplying into mining customers located in Solar Red Sea and also Papua New Guinea. And because of a much lower revenue, PBT declined at 59% to MYR 5.6 million because of higher freight costs, reduced output, higher unit production costs and also higher repair and maintenance of the kiln. Packaging division revenue was up 24% to MYR 122 million, and this is in spite of a very competitive environment. However, we had capacity expansion last year. Therefore, a lot of effort were channeled to building new customers and also increased penetration of existing customers. Because of the rise in the revenue, PBT rose 10.7%, showing some decline in margin because of the pricing pressure resulting from the volume growth. All right. Moving to balance sheet. There are no unusual movements between 30th September and 31st December last year. Receivable remains very, very healthy. As you can see, declining MYR 80 million to MYR 312 million because of better collection from EDL. EDL has been very prompt in their payment to us and also to service the installment of the restructured portion of the receivable into a term loan. We had a very strong cash flow during the first 9 months. We generated MYR 566 million after-tax cash from operating activities, which is 23% more than last year, of which MYR 282 million was deployed for investments. MYR 85 million was distributed to stakeholders, primarily shareholders in the form of dividends and interest expense to our bankers and we retained MYR 238 million for the group future use. During the first 9 months, we have spent MYR 282 million capital and is broken down into a few segments, RE, Resources, Packaging, Food Security and Others. Others are mainly investments in associates and JV, MYR 93 million. But the biggest chunk still goes to RE, MYR 141 million. Because of the improved cash flow, our gearing is reduced from 24.8% at the beginning of the year to 18.1% with a net debt of MYR 640 million. All right. Just some P&L details of Edenor Technology, our joint venture company. Third quarter continued to show progressive improvement, although it's still a big loss position, and we expect the improvement to improve sequentially moving forward. All right. The prospects for fourth quarter, essentially, the operating environment remains very challenging, just like the past 2 quarters. We don't see that easing. And this upcoming quarter, we foresee additional challenge from a strengthening ringgit given that we have quite a fair bit of export business that should result in margin pressure in our manufacturing arms, including resources and packaging. As like before, we will stay alert, continue to stay alert and be responsive to market volatility and rising costs. Overall, renewable energy is expected to maintain its earnings in the final quarter. Resources will continue to face tough competition, but I still foresee earnings to be stable quarter-on-quarter in the fourth quarter. Packaging side should continue its growth momentum as we continue to push forward with deeper customer penetration and also customer base. Edenor plant has already more or less stabilized with some teething problems, but we are now faced with extremely weak market condition as we head towards the year-end, partly because of the winding down of stocks by various players and also increase in capacity by existing players. Nonetheless, with a more stabilized plant utilization, despite the weak market environment, we do expect sequential improvement in the fourth quarter compared to the third quarter. All right. In terms of capital commitment as of end of September, we have a capital commitment -- approved capital commitment of MYR 122 million. The bulk of it will go to packaging. But packaging, we are trying to delay further expansion. So this is just what was approved, but may not be spent this upcoming fourth quarter or the next 6 months. RE is the -- just to complete the Maldives and also the CGPP in Tronoh of 51-megawatt plant. All right. Moving to specific division. RE, we expect roughly to be the same in the fourth Q. We will start our overhaul of the second unit turbine starting early December. Water level today is still so high. That's why we have been pushing back a little bit. Most likely this time around, we will do 2 overhaul, one in November and the second one probably in February or March so that we can complete 2 overhauls this year before the onset of rainy season in May, June period next year. Outstanding loan for the project, we still have MYR 63 million, and this should be fully repaid by next year -- by end of next year. Solar will continue to grow, especially with the energization of the Maldives 11.4 megawatt and Tronoh 51 megawatt. We should see earnings coming through quite strongly for solar next year. Okay. This is our Tronoh project. 51 megawatt. There are 2 projects here. One is Mega First, the other one is [indiscernible] next to each other. This is the Maldives project. More or less it is completed. We are just waiting for the grid to be ready for connectivity. So total portfolio after the hydro projects are completed, we will have 422.2 megawatts of RE capacity in the region. On the Resources division, we expect the challenging condition to persist for the rest of the year. We are trying to maintain our volume and market share while tackling the rising cost because of changes in regulation, removal of subsidies, reintroduction of expanded SST and also the change in the energy tariff structure. But I think fourth quarter, we should be -- earnings should be satisfactory. Packaging division, we grew quite strong in third quarter, and I see that momentum continuing into fourth quarter. So hopefully, the earnings of Packaging division can be sustained sequentially in the fourth quarter. All right. I'll stop here and open for Q&A.

Great. Thank you again, Mr. Yeow. As usual, for those of you who are calling in for the first time, we will try to group the questions based on the different divisions that Mega First operate in, renewable energy, packaging, food security as well as the other ventures. So Rondy, would you like to start with your first question?

Okay. So I think we will start from RE. Maybe we'll start with Don Sahong first, then we move into solar and also BESS. So on Don Sahong, the first question that I had previously is, as Don Sahong full tax exemption status ends in 2025, what is the blended effective tax rate should we model for FY 2026? Has the management taken any steps to mitigate the tax leakage? Or will we see a direct impact on the net profit margin?

Next year, tax will start off with 5%, but 5% is 5% of chargeable income at the project company level. So although I just mentioned earlier that our loan of MYR 69 million will be fully repaid by the end of this year, that's only from the group perspective. The project company is still -- has quite a fair bit of indebtedness in order to provide some interest tax shield, if you like. So based on the estimate, it will be less than 5% of group PBT for renewable for Don Sahong. I estimate probably around 3% to 3.5% instead of 5%. And PBT should be slightly down mainly because of currency loss, not so much in terms of U.S. dollar term. I think in U.S. dollar term, we should be flattish year-on-year. Bear in mind that we are out doing overhaul of 2 turbines. But on a translated basis to ringgit terms, there will be some marginal decline plus a 3.5% effective tax expense.

Would you be able to give some kind of a rough estimate to say that for every 100 basis points decline of the -- or the strengthening of the ringgit to the dollar, how does that translate to your PBT?

Exactly 1%.

Exactly 1%.

Because it's translation. So USD 100 million revenue would translate into instead of MYR 420 million, if it is based on MYR 4.2. If it's down to MYR 4.10. It becomes MYR 410 million. There's a direct translation loss.

All right. Okay. So how long from public is asking what is the expected cost for the overhaul of each turbine?

I think we can only have the overhaul cost from the first turbine as a guide. If you can recall, before we even started the first turbine, our overhaul expense guidance was USD 2.5 million to USD 3 million. I think we managed to do it within USD 2 million. So hopefully, we can repeat that. So in other words, for 2 turbines, it will be around USD 4 million.

And just a follow-up. Can management remind us, will the fifth turbine fully offset the revenue loss from the downtime of the units under repair? Should we expect temporary dip in EAF below usual 90% range during maintenance quarters?

Okay. It can be quite confusing trying to explain using words because today, we are dealing with 5 turbines. The historical EAF of 89%, 90% is based on 4 turbines.

4 turbines.

So as we always clearly stated with the fifth turbine running at an average EAF of 40%, if you combine all the 5 turbines together, under the old way of calculating, we should only achieve an EAF of maybe around 81%, 82% for the full year.

Correct.

Next year, is it going to change? Answer is potentially, it will decline slightly, mainly because of the 2 turbine overhaul. But what we try to ensure here is at any point in time, we have 4 turbines running. So the loss of EAF arising from the overhaul of 2 turbines instead of 1 is more marginal because at any point in time, I still run 4. But instead of running 4.2 turbine, I can't run the 0.2 anymore because the other one is still under overhaul.

Completely, yes.

So there is some slight decline in the EAF, but it won't be material because we are still doing it during the dry season.

Also just to clarify, the plan is for 2 overhauls in first half of next year, is it?

No, no.

How often do we need to do overhaul of the turbine?

First overhaul, we've really done it last year -- December to end of February or early March. This year, we will do -- we will start slightly earlier because we intend to do 2. So we will start instead of towards the second half of December, we will start maybe first week of December. So we are talking about next week. We will start so that we can complete it hopefully before the end of February, the first turbine and then continue with the second turbine overhaul until maybe May or early June, okay?

So to refresh all our memories, what is the duration from first starting of operation to the first major overhaul of any one of the turbines?

All right. Overhaul theoretically should be done every 5 years. So when we first did -- when we first overhauled the first turbine, the first turbine is already 5 year old, but so were second, third, fourth turbine. So when we do -- why we need to do 2 this year is because if we don't do 2, by the time we overhaul the fourth turbine from the original batch, that fourth turbine would have operated for 9 years. So I think we are pushing a little bit too hard on the turbine. So in order not to push too hard, we have decided to do 2 this year, all right? So these 2 that we are going to overhaul will have operated for 6 years instead of 5. And then the last turbine would have operated for seventh year before it's being overhauled. And once we finish with that, it's time for us to overhaul the fifth turbine. Yes. So the cycle will just continue once we do the first round.

2 simultaneous. So virtually, you have to start with 2. It has to be almost like a pair, pair, pair going forward. Okay. Got it. So that answers Andrew Lee's question as well. 2 Simultaneous. All right. So next one, I'm going through most of them -- a lot of Edenor questions. Okay. There's one. As the major CapEx for RE and Packaging is coming to an end, it's more general. What is the management planning to do on a huge cash flow? Is there a chance of a special dividend for this year to boost up the share price, which is currently at a 5-year low? And secondly, since it's coupled together, I ask what's the management plan on investment of D&O, which dropped sharply today. If I'm not mistaken, all paper profits are gone. I mean, from his perspective, I guess.

I mean we are now in a very conservative mode. We are trying to conserve cash. Fortunately, we have the ROE to generate very, very strong cash flow every year. We intend to strengthen our balance sheet even further while exploring new projects on the RE front and not so much on other divisions. The other divisions, we continue to tighten, and we continue to sit tight and hopefully, we can weather through this without too much pain. So far, it's okay with the exception of Edenor. In terms of resources, it's always been very cash flow positive. Despite a lower earnings, it is still very, very strong cash flow generating from the Resources division. So this year, we can still generate close to MYR 40 million cash from Resources. And the earnings are very stable in that respect. Packaging side, because of the huge capacity expansion that we supposedly completed 2 years ago, but it was tracked until last year. We are now working towards increasing the plant utilization. We have quite a lot of good progress with customers, including large ones by increasing the number of SKU. So hopefully, that will continue to grow strongly. So we do have pretty ambitious numbers for Packaging division in 2026 because of the existing available capacities that we have installed. So we do foresee that Packaging will grow both top and bottom line. Top line will probably grow faster than bottom line because of the price competition and also the slowness in the consumer market. But we think we can actually break through in some of them, although at a smaller margin.

How much will margins be compressed from your...?

It depends on product mix. So far, our product mix, the growth is coming from -- a lot of growth is coming from paper bags. Paper bags we're selling to the U.S. That is growing quite nicely. Margins are quite decent. Plastic side is still very competitive, but we are holding up quite well. Plastic in total still generate more than probably 60% of the PBT of the division.

Yes. So it's fair for me to say plastics, while is the volume mover, that's where you see the pricing.

Yes. In terms of turnover, plastics is probably 70%, 75% of turnover, but generate only maybe 40%, 50% of profit PBT.

Okay. Revenue, 40% to 50% of revenue.

Can you comment on the D&O?

Okay. In terms of -- so we will continue to conserve cash. We will strengthen our balance sheet. We do not mind the balance sheet moving into a net cash position, at least in the short term, while we are working on new larger RE projects, we've got a few good leads. So if any of these materialize, we may have to gear up again.

Understand.

Okay. So whatever cash that you see there is big and yet not big, especially now to build a hydro power, 1 megawatt will probably cost you at least USD 3 million. And if you were to build a solar, it will probably cost you around USD 1 million. So everything has gone up. And therefore, if we want to increase our portfolio by another 300 megawatt, whatever cash we have is actually not sufficient but it's probably sufficient for equity participation, but not sufficient to fund the entire project. We still need to gear up.

Understand. Understand.

So in the meantime, we just conserve cash. Dividend will continue to maintain at least or more -- and that -- whether we have a special dividend, I think it's too early to talk about that, given we still have about MYR 640 million net debt. We have not yet strengthened the position that we will consider a special dividend.

Okay. The D&O part?

D&O part, I mean, D&O has always been a long-term investment insofar as Mega First's books is concerned. We will continue to hold it. This time around, the impairment that we have done -- or not we have done. D&O has done. I remember the [indiscernible] the impairment we have done is something that is necessary because the risk profile of the inventory has actually evolved over time slowly but surely because of various factors. Some of it is industry demands have become more stringent. Technology has also improved. We are migrating to more complex production platform that carries a different type of risk. So because of that, last time, our accounting policy is anything more than 3 years we write off. But because the risk profile has grown and it has stretched -- so we cannot afford to just say onetime write-off in 3 years. We'd rather stagger it. So we introduced this concept of progressive general provisioning for across all inventory classes, divide them into more higher risk and lower risk.

I see.

So higher risk will have a faster progressive general provision and lower risk will have a slower progression in terms of the general provision. So after working through all this, we decided that we need to make a general provision of MYR 249 million.

MYR 249 million, okay.

Divert a bit.

I know, yes. But it's good because there's another question is that will Mega First need to do impairment. I think this is more of the equity holdings on Mega First's balance sheet. Rather, this is more -- what you answered is more inventory of D&O, all right?

Yes, yes. Insofar as Mega First investment in D&O has always been classified as long-term investment. So even during the good old days when the share price moved up, we never account for the profit in the P&L. It's always under other comprehensive income. It will affect your equity, but it will not affect your P&L. So this time around, when the profits will reverse, so unrealized gain will reverse, it will automatically also reverse via the balance sheet rather than through the P&L.

Yes. So I'll just reply that it's never been accounted under P&L.

It's always -- anyway, if anything, also this one will be regarded as a non-normalized item.

Yes. Okay. Got you.

Maybe I revert back to solar and BESS, if you don't mind.

Yes. Go back. Yes.

So regarding the bid for the 400-megawatt BESS submitted in July, when do we expect any outcome? If successful, how will this project be funded? Will it require a new round of debt financing? And does the current depressed battery price environment improve the projected IRR for this venture?

We kind of like know what are the rates that other people have submitted. And it clearly is a very, very competitive market to the extent that the IRR of the project, whoever wins it, it will probably be very low. We have submitted a bid on something that we are comfortable. Okay? I mean, will we win? I look at the prices of the other players, not easy. It will be difficult, all right? When are they going to announce it? They are supposed to have announced it last month in October, but it's been dragged just as usual. until they announce them, we know. But unlikely, we don't stand a good chance given the prices that we have submitted, all right? But it's some, okay? Because at the end of the day, why bother going into something where you lock yourself up for the next 15 years and only to work for the banks. No point. We must wait for the right opportunity to invest. So whatever that we invest, we must make sure that we have sufficient return for shareholders -- for all shareholders, not just us.

Would you think that if interest rates improve by, let's say, 2 basis -- 2 full points, would that make IRR attractive if your cost of capital is like.

Yes, of course. I mean, normally, we look at projected IRR. I know some people look at equity IRR. If you look at projected IRR, there's not -- we may lower the projected IRR just because funding cost is lower. But you also have to be careful because you don't be caught the other way around when interest rates start to rise 5 years later. And then you are caught with the pens down. All right. So we normally have a minimum return required return on projected IRR. And if the interest rate comes down, then it will slowly -- it will slightly improve the return on equity.

I think on CGPP. So regarding the 46.5 megawatt CGPP in Malaysia, are we on track for the scheduled completion date? More importantly, what is the projected IRR for these projects compared to our hydro assets considering the current cost of solar panels?

For our CGPP, we don't have a specific IRR calculation because the selling price to Tenaga is not fixed. For CGPP, the selling price is single buyer price, which fluctuates every half an hour. And it's meant to be the marginal cost to Tenaga based on gas-fired power generation. And it's very transparent. You can actually access the single buyer website, and you can actually monitor on time the current price of energy. I mean, I haven't checked of late, but the last time I checked, it was something like MYR 0.21, MYR 0.23.

Per kilowatt?

Yes. And given our panel costs of slightly less than MYR 0.10, it should give us decent projected IRR, definitely higher single digit.

And maybe I'm going to tie that up to another question. This one is on CRESS Corporate Renewable Energy Supply Scheme.

CRESS?

Yes. So with the government's introduction of CRESS, is Mega First actively engaging with high-demand corporate clients like the data centers for direct green power sales? Does management view CRESS as a viable route for higher margin compared to traditional PPA with the TNB?

We are working on CRESS projects. We have 2 areas of cooperation. One is with landowners. And the other one is with offtaker like data centers, either directly or indirectly. So we do also work with partners who have access to these so-called data centers. I can't tell you names, but we are currently working with 2 major partners in terms of getting the customer. Whereas in terms of land, I think we do have 2 pieces of land that we can use.

Can you provide some more color when it comes to what is the higher margin like when you are dealing with the data centers?

I mean data centers are also not stupid.

Hyperscalers are.

I think they do calculate more than we do because they know energy is a very high-cost component given the way that data centers are set up. Is it going to give you extraordinary return? Answer is no. I think at the end of the day, in Malaysian context, if you can get high single-digit projected IRR is considered very reasonable, very attractive. So unlikely -- I mean, even though they lower the system access to MYR 0.20 instead of MYR 0.25 with battery. In order to make sense, we, on our side, must get at least MYR 0.25 because there is battery cost involved. So if you can't get around plus/minus MYR 0.25, then you won't be able to generate decent return. So if you top up with -- no, sorry, MYR 0.25, then they drop it to MYR 0.40. So it's still 60%. It's still more expensive than the normal power. So it's not given, but it is something that we are working hard on.

Yes. I just checked the single buyer website. It's -- as of October, it's MYR 0.1862 per kilowatt.

Because gas dropped down.

Yes, gas prices dropped. October as of October, they haven't updated the November numbers.

I mean based on MYR 0.18 plus, we are still profitable, but maybe not as profitable as we would like to. But it will fluctuate. It fluctuates every half an hour.

Okay. Yes. Any more?

If not, we can move to battery. I guess there's just 2 questions here in the chat. Just wondering with the new ATAP program for solar rooftop, are you seeing much lower demand for C&I and residential rooftop moving into 2026? And probably the last question on solar. Why hasn't Mega First -- why hasn't the solar division secured any contracts?

We have slowed down our C&I. I think C&I growth peak is over. The good ones have already got it. Those haven't got it, you don't want to do any deal with them because you don't know whether they'll be around 5 years later or those with poor credit rating or those with no proper roof, strong enough to pulling the solar panels. So there are many reasons. But definitely across the industry is slowing down because those who wanted it would have installed it by now. And we have also found that putting too much effort to grow the remaining part of the market that's not yet installed may not make sense. So we will still do it, but we will not pursue it actively. We will rather pursue bigger projects like CRESS or even BESS rather than going to 1 megawatt, 1.5 megawatt.

What will be a good size for you guys to consider? I mean, obviously, you don't want 5, 10.

I mean 50 to 100 is good, for Malaysian context. If we can get 100, of course, we would like to get 100.

That's when you really see the leverage of scale.

Now we're also exploring not just Laos and Malaysia, we're also exploring Cambodia. Cambodia demand has picked up. They have quite a fair bit of potential in wind, especially along the border with Vietnam. So let's see whether we can explore that as well because we do have land there. It's an idea that we are pursuing.

Got you. Got you. Okay. Rondy, any more? I see there's one more on BESS, which is lumped together with something else. The rest are more the other divisions already. So can I take the BESS one first?

Yes, sure.

Okay. So any update on the BESS bidding progress so far? I've noticed there hasn't been any public update to the market. Just wondering if things are still pending.

[indiscernible].

BESS. Sorry, sorry.

BESS?

Yes.

Yes, I think BESS is supposed -- as I said, supposed to be announced. And every time I ask for an update, they say it's supposed to be announced next week, then next week comes, no announcement; they say next week. So I've been waiting for the last few weeks. So we just have to wait until they announce.

Okay. I understand. Okay. Then do you want to move on to packaging first, Rondy or because elephant is a room in Edenor. There's a lot on Edenor.

I guess there's just one last question here from Mr. Heng. We -- on regards -- I mean, on RE, we already near the end of FY 2025. During the last AGM, Mr. Goh mentioned setting aside MYR 1 billion for utilities-related opportunity. Just wanted to check any update on that? Has anything moved or still in exploration stage?

The project that the Chairman referred to is still there. Still work in progress. Unfortunately, there's nothing new to update. As I said, we are exploring projects as we speak in Laos for hydro, Cambodia for wind, for Malaysia, both hydro and wind.

Solar.

And these projects are not the 1, 2 megawatt. So if any of it come to fruition, it will have a pretty big capital outlay.

Much more than what has been projected that you have presented.

MYR 1 billion possible or even more.

Okay. Let's move on.

Okay. We do Packaging first also from Heng, Mr. Heng. Could management provide an update on any significant developments in securing new customers in Australia and the U.S.? If there's development, what is the current status? Which industries do these new customers operate in? I think you did allude to some paper and plastic is still the main...

Australia is still a growing market. We sell many paper bags to those wholesale markets and the supermarket chains. In the U.S., we mainly sell to distributors also to supermarket chains and supermarkets and groceries, all right? If you watch Hollywood movies, they will always come up from the supermarket catching a paper bag. without handle. These are the kind of paper bags we supply. So you have large and small. And I think we have managed to find another customer in the U.S. So that's giving us some growth impetus. And hopefully, we can continue to grow market in both Australia and New Zealand and the U.S. for paper bags. For plastic, it's more in Malaysia and the region, more so in Malaysia. And we are, again, working very closely with existing customers to increase the number of SKUs. As you know, once we get into some of these big boys companies like Nestlé, it takes a while to gain confidence and traction with them before they will give you another SKU. And each time they give you SKU, they always start off with a low runner, then followed by a bigger runner. And if we can run like really those big Renault Megane, for example, then it will be huge platform. But price won't be great. So the one you need to have a dedicated line to run for them because it's very huge.

It's volume. Yes.

So we are also looking into exporting our plastic solution across Southeast Asia and usually a bit of African market as well very carefully because payment could be an issue.

I understand. Could you provide the utilization rates for Hexachase and Stenta, showing both the new production line and the existing line separately. I don't know if you have the numbers of your head.

Yes. Okay. Of course, today, we are producing more than the original line, but we are only starting to ramp up on our new capacities. I don't think in terms of Stenta, we are not even 40% of capacity yet of this new capacity.

Of the new, okay?

We are not even 40% yet. But we all know that it will take time because you cannot secure business without having the capacity in place. So then it becomes a chicken-egg issue.

You build first then only the...

You build then you want to grow your business. You at least can pitch to customer, look, I got this capacity ready, come and visit my plant, come audit my plant. If you don't have capacity, you can't audit your plant, all right? And we are trying to go more into niche markets, not the commodity market. So we have come out with various innovative products and it's now at the test stage with the customers. So they're going to make sure that the product lives up to its brochure expectations.

I understand. What is advertised -- you had a question, Rondy?

No, I think we got it all.

Yes, just finish all the packaging one. Could management provide guidance on the expected revenue and sales output for financial year '26?

Packaging?

Yes, as well as the current order visibility for the year.

Okay. This year, we will probably do around MYR 440 million to MYR 450 million turnover, okay, which means that in the fourth quarter, I must do at least what I did in the third quarter in order to achieve MYR 440 million to MYR 450 million. If it comes to USD 100 million then it become MYR 420 million to MYR 430 million -- it's still growth because last year, we only did for the full year about MYR 400 million. So we are still talking about.

10%.

8% to 10% growth this year. And next year, take it with a pinch of salt, but we are very hopeful that we can reach about MYR 550 million, MYR 560 million.

Well, MYR 550 million to MYR 560 million. Okay.

Capacity definitely is there. So we are working hard to ramp up the capacity. And we are hopeful that we can hit MYR 550 million, but take it with a big pinch of salt, MYR 550 million, MYR 560 million.

So about 25% growth.

We are hoping.

You need to hire more salespeople, Mr. Yeow for the Stenta Group.

If you got good people, why not? And if we manage to deliver that, then, of course, the bottom line will be -- there will be margin improvement.

Yes, that's exactly the next question.

Partly because today, our earnings are diluted by the underutilization of the new capacity because we have to start depreciation, we should start servicing loans when we build a factory, we spent in total MYR 100 million for both Stenta and Hexachase. I think including machinery, everything, 2 big buildings, we probably spent around MYR 150 million to MYR 200 million. So -- and that is partially debt funded. So now that the buildings are ready, the machineries are in, you're going to start depreciating, you're going to start recognizing all the interest expenses. So there's some dilution. So when you manage to ramp up capacity, the margin improvement can be quite significant.

What would be -- I don't know what's the right word, breakeven point for utilization that you see like margin?

It's hard to measure in that way because in today's competitive environment, we do often engage in marginal costing. We don't have a choice, all right? If you don't do, your fixed overhead is there.

There's no such thing as a cost-plus kind of manufacturing.

It's purely market driven. If the volume is huge and we need to fill the capacity so that we can help defray the overhead, we may do marginal costing. On a fully costed basis, it could be a loss position. But it's something that you need to do in today's environment. The operating environment is really difficult, and we just have to compete effectively.

If in an ideal scenario where full capacity is reached, what kind of margins should we be expecting?

I mean, historically, Packaging division should hit at least 10%.

PAT?

PBT.

PBT.

10% PBT is considered as very healthy and reasonable. But today, we are not doing that. We are probably doing 6%, 7%. Will it improve? Unlikely in the near term because of the competition that is in the market today.

I think everybody is like, Mr. Yeow, you always mentioned packaging is very competitive, competitive. And then this quarter came out and it's like it's a standout performer.

Yes, correct. Under-promise, over-deliver.

I mean, look, when I say it's competitive, you didn't look at last quarter. Last quarter, we crushed the MYR 300 million, all right? Sometimes it's which customer takes, all right? Sometimes it's the mix. So the last quarter, we did very well on paper. That doesn't mean it will repeat because when you buy you don't buy consistently every month, all right? So I have order for the next 3 months, then after I restock for 3 months.

So is it correct if I put the current growth could be driven somewhat by some sort of like a temporary inventory restocking cycle and not so much of a long-term contract that can sustain?

No. Usually, they don't buy every month because I think for logistics, for arrangements or whatever, they just buy enough and then they'll use it up to a certain level, then they place order again. So the order from one particular customer may not be every month. And even if it is every month, it can sometimes 1 container, 2 containers, 5 containers, and 2 containers, it goes up and down. So depending on the sales mix, of course, third quarter was fairly good for both.

Both plastics, both paper as well.

Yes. But will it sustain in fourth quarter? I don't know, maybe not. But overall, we do see an increased demand from our existing customers. We do see ourselves getting new customers. So that should serve as the foundation for growth for us.

What kind of visibility do you get in -- so usually, what's the turnaround?

You must also remember they are very sticky, all right?

But if for new customers.

Yes, so you first got to get in. Once you get in, you're stick unless it's screwed up on quality. If it's screwed on quality, then they'll buy from a second purchaser. Second supplier because usually, they have multi suppliers.

What's the qual process like? -- meaning, let's just say -- let's use the example of [ Megila ], all right? Maybe it's an existing customer, they give you a low runner. But then for them to call you to a higher, bigger volume, what's that time duration usually like.

It depends. It can be more...

It really depends. Shortest to longest or more.

It can be because sometimes depending on whether there's a drill down process. [indiscernible] Like we just went in for this golden duck. Yes, with qualification takes some time, but it's within like 2 months.

So it varies quite a bit.

Yes. But of course, there's a small company. It's a local company, but if you talk about Nestlé, it will be different. All right? To knock somebody out also not easy.

Yes, the incumbent is not easy.

Like right now, we are -- say for example, we are trying for Ajinomoto. We are getting it qualified and things because the existing supplier, I won't mention who, it's not delivering.

The quality.

The quality that they want. So they are looking for alternatives.

Understand.

So this hike in volume and also your new customer, was any of it driven by the packaging having to lower a little bit of the ASP or...

Everyone will talk about price. Everyone will talk about price. And you just have to be very competitive.

Understand. Yes. So just last 2, actually from Mr. Das as well as Andrew. I think -- is there a plan to spin off the packaging division? And then Mr. Lee, Andrew actually said, I wasn't here the last time, but there was talk about separate listing for packaging arm. Is that real? How will it benefit the company and shareholders?

I mean from Mega First perspective, we are actually not very inclined to list because we know how painful listing can be in terms of cost, all right? In today's listing environment, there are a lot of compliance issues, all right? We are moving towards integrated reporting. We are moving towards ESG reporting, and we are now moving to Scope 1, 2 and 3.

Yes, scope 3.

This incurred a lot of resources. So unless you are big enough or unless you're desperate, they will do list, all right? So -- but we -- I've said this many times in the past, we do have intention to list not so much because we want to list as Mega First, but because our partners would like it to be listed. The partners are the one running the show. They are top management. They are individuals. They are working the as of -- they want to see that they were.

It's like a milestone.

It's an achievement. So we will support that, all right? But if let's say, for example, if packaging is 100% owned by us today, we may not because why do you want to list unless you want to tap into the capital market. But what they need versus what we have, we can cope, all right? We have enough cash flow to cope -- so there's no point in incurring additional few million just on compliance. You hire so many new people, set up the internal audit department, you can set up the Investor Relations, unless they push it to me again. Hire independent directors, issue sustainability report. If your market getting MYR 2 billion, another set of...