Mega First Corporation Berhad (MFCB) Earnings Call Transcript & Summary

It is 2:00 p.m. A very good afternoon, ladies and gentlemen. Welcome to the Quarter 4 2024 briefing for Mega First Corporation Berhad. My name is John Chu. I'm joined by my co-host, Rondy Yunanda. And again, our esteemed guest today, Mr. Yeow See Yuen from Mega First. [Operator Instructions] For those of you who are the first time at the quarterly briefing, we'd just like to share with you how the presentation or how the flow of the program is normally held. First, there will be a presentation by Mr. Yeow about the updates of all the business divisions will make first and then followed by a very comprehensive and I think it's quite comprehensive Q&A. We will normally group the Q&A based on business divisions, usually starting with the Renewable Energy division, then followed through either with the plastics or oleo and the rest. So, keep those questions coming in the Q&A. We do first apologize if we cannot answer all of them because we'll try to group them as much as possible, and we try to keep it within a 2-hour limit. So, without further ado, if everyone can hear us loud and clear, I'll give the floor to Mr. Yeow. Mr. Yeow?

Thanks. Thank you, John, and thank you, Rondy. Welcome, everyone. You can see from the first slide, this is how the dry season in Lau looks like. So, at this kind of water level, we are still generating about 202 megawatt capacity out of 325. So, we are still okay. Like before, the agenda is the same. We'll go through the results, look at the cash flow, look at how we deploy capital, look at our balance sheet, and provide some updates on Edenor and other corporate developments. And then we will move on to talk about the prospects for 2025. Just a quick run-through. Our revenue in the fourth quarter went up 123%. That's because of the recognition of construction revenue, which incidentally is mostly one-off with the exception of construction revenue from the Maldives project, which will flow through to this year, but the figure is not big. The bulk of it is still entirely fifth turbine. A lot of people will be wondering why, suddenly, we have this construction revenue. We didn't want it. But the moment that we announced our concession agreement and supplementary concession and supplementary PPA, the auditor said then you must recognize. So, because it's already completed, we had to recognize the entire fifth turbine construction revenue in 1 year rather than spread it over last year and the year before. The year before, there's no construction revenue or construction profit recognized because there's no concession agreement signed. Therefore, there is no construction profit and revenue. But the moment that we announced that we signed in December last year, the auditor said, look, you just have to recognize the entire amount of construction revenue and asset in 2024. So at the same time, we have a small little project of 11 megawatts in Maldives, which is still under construction and should be completed by June this year and commercialized around the same time. So, we still have about half a year, and the estimated impact to the PBT is around 5, 6 million positive. But if you look at the core PBT, we are up 7% to $145 million. The overall group is up 5.5% PBT to $146 million because we have construction revenue that is offset by higher losses in investment holding and others. I've listed in the slide the key contributors to the losses in investment holding and others, primarily due to the loss in JV and associates. We also recognized an $8 million fair value loss on PJ8, our investment property, and that is partly mitigated by a Forex gain of $10.8 million and a $4.2 million gain on put option liability. So, later, I'm sure there will be questions on Edenor. But basically, Edenor experienced significant capacity loss from repairs and upgrades, compounded by market weaknesses and excess global capacity. And as you all know, commodity price volatility was very bad in the last quarter, plus some impairment charges because we were making losses. But if you look at the profit after tax and noncontrolling interest, we are actually up quite substantially, 16.1% to $142 million. Based on what I consider as the recurrent PATNCI, which is normalized to exclude all the one-off items, including construction profit, including associate contributions, the PATNCI actually grew 51.4% to $147 million because of strong core earnings and also the effect of additional 15% stake in DSPC that we acquired the year before December. All right. This one shows you the reconciliation of how we arrive at normalized PBT. As I mentioned, the adjustments are all the one-off items plus associates and also any Forex gain that relates to capital transactions. Forex relating to trade transactions are included as normalized because that's part and parcel of doing business. But occasionally, we do have a Forex impact on capital transactions like capital repayment. For any transaction that's capital in nature, we'll just remove it. I foresaw for the first time should give you a sense of how the normalized PBT in the last 5 years since we commissioned Don Sahong. You can see that we have actually been still growing, and the PBT normalized PBT actually grew by 7.2% compound average growth between 2020 and 2024. Renewable energy actually grew 5.6% compound basis in the same period. So, I thought it's useful to see when we deploy capital, this is how we intend to grow our earnings. This one will then reconcile again, on a normalized basis, what the profit after tax and noncontrolling interest. Again, the PATNCI grew 51% in the fourth quarter. For the full year, it was up 25.3%, mainly because, again, of strong earnings in our core divisions plus a very important 15% additional stake in Don Sahong. Again, the 5-year trend of profit after tax and noncontrolling interest. It is gradually growing between 2020 to '23 as again reflected in PBT, but you see a sudden jump in 2024. So, the additional jump is the effect of the 15% equity interest. Moving to individual division. So for the fourth quarter, revenue is only up almost 2% because we have high energy sales, but that's largely offset by 5.7% currency loss and an almost 2% decline in the weighted average tariff during the quarter. Polar is flattish because we have not got any new capacities. Hydro energy is up about 10% volume-wise. That's because of fifth turbine compared to the previous year fourth quarter. The average year because of the fifth turbine, also dropped to 85.7% average compared to 97.4% in the previous year because of the overhaul of one turbine and also lower water heat as a result of the fifth turbine addition. PBT, however, is up 11% because we have higher revenue and also some write-back in the credit loss. And PATNCI is up 37% to $135 million. This one I'll leave it to you to read it. Anyway, a copy of this is uploaded in our website. It should be uploaded by now. So, you can see the trend is quite consistent every year in terms of the water level throughout the year. Resources side, the fourth quarter looks weak, but that is because of a delay in 2 large export shipments because of the sales cut-off adjustment by auditors. Revenue actually declined by 7.5% to $43 million. Without this shipment delay, which is proposed in December but only recognized in January, revenue would have shown a double-digit growth, reflecting a resilient demand for lime products in the region. PBT is up 6.5% to 6.6% because of productivity enhancement and cost improvements. Packaging is facing a slowdown. So, revenue is down 6.4% because of weak consumer demand and intense competition because of excess capacity in the industry. PBT is down almost 50% to $4.1 billion, mainly because of lower revenue and the margin pressure from price competition. Looking at the balance sheet, there are a few new items in there which I would like to highlight. First, the service concession asset has increased because of the fifth turbine. Once we sign the concession agreement, the cumulative development cost is transferred to the service concession asset. We also introduced an item called natural resources rights. This one is our investment in the water rights of Don Sahong for up to 2,140 gigawatts of energy. So before that, we didn't have anything. That was part of the settlement that we did in December last year. Investment property, we have bought the land, as mentioned earlier, 668 acres for our solar project development and also greenhouse development. Now, there's a sharp drop in receivable. That's because all the long outstanding receivables relating to the local currency portion have been restructured to long-term loan receivables from EDL. This term loan receivable will attract an interest plus it is secured against payment from EDC as well. So, there is no worry over collection for this term loan. That's about it. Cash flow review, I have rigid the way I present it to make more sense and can better appreciate by the reader is the investing activity is now divided by the division. So, you can see the bulk of the capital deployed out of the $858 million that we deployed last year, the bulk actually goes to renewable energy, specifically, this is for the fifth turbine plus the investment in water rights and plus some solar as well. And the packaging division is the second largest. That is for the construction of our 2 factories plus the capacity that's coming on stream in the later part of the first quarter of 2025. We have also bought 2 pieces of land out of 129 million; $77 million is for the 688 acres that we bought for solar and greenhouse farming. The other $41 million is the land that is dedicated for medical center development. Last year, we paid some dividends, $97 million. So, total distribution to stakeholders is $170 million, and because there's a shortfall, our net debt has gone up by $485 million to $878 million at the end of last year. So, this is a summary of how the capital deployed was spent by division. So, the bulk of it goes to RE, followed by packaging. And the others are mainly land and for security as well, anyway, food security is also in there. So, this one will be land you can see from here and also investment in associate. So, the gearing has gone up, but still at a very comfortable level of 24.8%. So, we still have a lot of capacity to borrow if needed if we happen to find a big project. Edenor, I think I'm sure I'll answer some questions there. But basically, it suffered quite a lot of losses last year because of market conditions and also our plan was unreliable. But things are improving, and we should see a turnaround soon. We announced a supplemental concession agreement and power purchase agreement. So, it's already been announced; essentially is an extension of the concession period by almost 5 years and will now expire only 31st December 2049. We have also agreed to invest in the water rights and paid $82.5 million upfront to the government of Lau. The tax exemption has also been extended although not complete exemption, but it will slowly increase up to 24% in 2030. This year, it will still be tax-free for the full year. The tariff side has been reset. So, we are now going back from $0.064 to $0.06 and slowly increased by $0.05 every year until it hit $0.062 and stay at $0.062 for the balance of the concession period. So on a levelized basis, there's no change. It's 0.0615. Prospects. We actually expect our core divisions to remain resilient despite a very, very uncertain economic outlook because of the policy uncertainties, the geopolitical tension that we are seeing now, all the resulting trade disruptions, and very weak consumer sentiment globally and also industrial overcapacity. But we still think that overall, our core divisions will still be stable. This is our capital commitment, both approved and not approved. So, you can see it has a sharp drop because we have completed most of it. There's still a renewable energy expenditure of 143 million for the CGP that we are constructing, a 51-megawatt peak in Toronto, the land that we bought. The rest are food security and also the tail end of packaging costs because of the factory expansion. Other than that, there are no new items for now. RE side, there are some offsetting factors. So on the positive side, you have, of course, the full year benefit of the fifth turbine addition. So, we should see an overall increase of 3% of energy volume year-on-year in 2025. We will also see a very substantial net royalty expense lower because following the acquisition of the water rights that I mentioned earlier. And because of the extension of the concession period, the amortization charge based on the net book value as of the end of last year will be lower because it's stretched over a longer period of time. However, on the earnings side, there will be some negative factors. The biggest will be the reset of the energy tariff to $0.06 compared to the weighted average of $0.06224 in 2024. And because of the fifth turbine plus overhaul, we will see additional O&M expenses in 2025. So, loans outstanding are less than $100 million at a weighted average interest of 6.72%. So, this is the completed 5 turbines. This shows you the overhaul that is underway right now for one of the units. So far is on target. So, we should reassemble and start commissioning again this one sometime in March. On solar, we still expect continuous growth because we still have 63.2 megawatts peak capacity that will be commercialized over the next 12 to 18 months. This is the 688-acre land that we bought. So if you can follow my pointer, this is the land all the way until here. So, this site will be all solar. This solar site will house both our 51 megawatt and also [indiscernible] 51 megawatt over here. This site, we have reserved for future greenhouse farming, which is next to the 150-acre lake, a very big and deep lake. So, water sufficiency is guaranteed. This is the site on Toronto, all the earth work that we are doing right now. This one is the Maldives project that we are constructing. You can see how sandy it is. This is 11.4 MWs. So, it has got very beautiful scenery because it's in the Maldives. These are just additional pictures. So, this is a summary of our capacities. There's no change from the previous quarter. It's still around 420 MWs when completed. In packaging, we do expect a very challenging environment continuing into 2025. So, management will continue to focus on customer expansion, cost efficiency, and innovation. Unfortunately, new capacities are coming through, although this will put some pressure on margins in the short term, but it will enable us to take advantage of the market rebound when it happens. So overall, in 2025, we still expect it to be satisfactory, although there won't be any growth unlikely. Domestic lime demand is expected to weaken because construction activities in Malaysia is slow. But, regional demand is strong, but competition is very intense. So, we are hoping that we can at least have a flat turnover. So, in the meantime, we will focus on cost efficiency and market expansion in the region. So again, in 2025, we expect it to be okay, satisfactory, but definitely not the growth that we saw in 2024. Edenor, just to recap, we faced significant capacity losses. The key to turning around is to stabilize the plant, which we hope to stabilize by this month. We are in the process of changing the catalyst, and we are firing up this week. So if nothing goes wrong, all the rectification and upgrade work, hopefully, all come together and make the plant stable. So, we should hopefully see some results starting in March. Once the plant can be run reliably, everything else will naturally fall into place. What happened in the fourth quarter is because the plant was not stable, the commodity price was very volatile. All the hedging goes haywire because we are not able to produce and deliver on time because the plant is not reliable. So once the plant is reliable, you will find that your hedging will become more effective and also your delivery schedule will be more predictable, so you won't suffer from a sudden rise in raw material cost and you can't deliver. And then later on, you're going to buy raw material costs at a much higher price. So, this was what happened in the fourth quarter. On the food security side, we have not yet separated because we think that is still too small, but we will continue to provide some updates here and there. So for the division last year, we had a revenue of $50.6 million and a pretax loss of $5.3 million. That's because a lot of farms are still in the development stage. So, we don't expect near significant term profit or loss, but we do expect an improvement year-on-year, even starting from 2025. This is just some sustainability update, but I would like to highlight to you the progress here. You can see that we have made it to FTSE4Good and FTSE4Good Sharia indices last year. We have pretty good rating in terms of our ESG assessment. We have also done the greenhouse inventory count for 2022 and 2023 that will pave the way for us to move further into our longer-term targets. That's all.

Thank you again Mr. Yao. I think it's a challenging year, you would say, for 2025 and 2024 going forward as well. And I guess, as usual, we start off with the major contributor to the business, which is renewable energy. So, I've got a few questions already lined up. I think the first few questions were with regards to the packaging. We will address it later. But I think the first one is from Heng Wei Yang. I think in terms of the budget for the major overhaul turbines, since the first turbine is overhauled in the fourth quarter, any unexpected expenses? Has it cropped up yet, or all within the budget for the overhaul?

It's still within budget. We don't know how much exactly it will cost yet, but so far, there doesn't seem to have any indication that it's going to exceed.

I think this is a question that is on everyone's mind, maybe to refresh them on the payment, the new CA PPA, perhaps you can go back to the Slide where they explain because it's like he is still trying to find the changes in the payment process. And yes. No, I think it's more the CA PPA. So, I think his question is more, one, of the changes. Two is actually you mentioned something about backing the debt, the convertible to the debt. Yes. So maybe you can give an explanation why is that a little bit more secure because of the conversion into a loan and whatever the receivables that have come down?

I think let's first touch on the concession agreement and the PPA. So we have been operating for 5 years. The first 4 turbines were commissioned on the 7th of January 2020. But the original COD date, which is a starting date for the 25-year concession, was 1st October 2020. Although we started operation on the 7th of January, the COD does not kick in until 1 October 2020. So effectively, we already had 9 months, almost 9 months of a free period to generate electricity and sell electricity. So with this new supplemental concession agreement, this COD date of 1st October is now further pushed back to 1st January 2025 this year. January 2025 is the count starts for the next 25 years concession period. So effectively, it's been extended by 3 months on paper, effectively 5 years because we started in January 2020 and October 2020. So, concession period itself is quite easy to imagine. And as in the old concession agreement, we had royalty payment for the water that we use. [Foreign Language] So, in Laos' case you use the water, you pay royalty to the government. And the all agreement is royalty starts -- out of the 25 years, the first 10 years is 5% revenue. The second 10 years is 15% of revenue, then the last 5 years is 30% of revenue, 10 weeks across the 25-year period did not change, but it just shifted the post start from 1st January 2025. But what we have done is we have invested to buy over the royalty the right to use the water by giving the government an upfront payment of 82.5 million. But this 82.5 million, the start date of royalty is 1st January 2024. It is 25 years plus 1 year. So, if you want to talk about the last year, 31st December '24 year-end, the actual royalty that we have invested is not 82.5. As we've already paid upfront, so we didn't pay. So, what is left in the next 25 years from 2025, 1st January is $75 million. So, this $75 million investment in water rights will be amortized over a 25-year period, that would give you an annual amortization of rights of about USD 3 million. So, the royalty of this 2,140 you can calculate. You just take 2,140, you multiply by $0.06, multiply by 5% royalty, that works out to be about 6.9 million. So, the P&L impact is, I have 6.9 million lower royalty expense, but partially offset by 3 million amortization charge, so your actual savings $3m to the PBT level. And then for the tax exemption, last time is 5 years tax for the first 5 years from COD. So, that original tax exemption would have expired on 1st October 2025. So, now with this supplemental achievement, effectively, we have extended the tax exemption to the rest of 2025. And then next year, 2026 will be 5%, 2027 will be 10%, 2028 will be 15%, 2029 will be 20%, then 2030 and onwards will be the full rate of 24%. So, for the next 5 years, we will still enjoy some concessions instead of full taxes under the old concession agreement. The full tax is 24%. So, that's what it means. On the tariff, because we first started the tariff at 6.15% under the old agreement. And every year, it creeps up by 1%, 1%, 1%. But don't forget under the old agreement after 10 years, it would drop 20% to $0.577 and then slowly claw back 1%, 1%. So, it's a very jerked kind of tariff, it is not good for us. It's not good for the us, it's not good for Laos government, so they say, can we flatten. But I still give you a levelized $0.615 so they say, okay now, since I will give you the extension and stuff like that, you start lower a little bit. So we start with 6%. Then next year will be 6.45, then 6.1,6.15, 6.2 then stays at 6.2 for the rest of the concession period. It goes up and down. So, unfortunately, from a year-on-year comparison perspective, it would appear that my revenue can drop because of the tariff. But from a business perspective, it is actually very good because I'm restarting the concession agreement, although I have over the last 5 years, pocketed in my pocket over $1 billion in cash. So effectively, I already paid for the plant and I still have the 25 years on the same or even better terms than the CA agreement. So, that is on the power plant concession agreement and PPA. Let's talk about the restructuring of receivables. The receivable, all the while I tell you that the U.S. dollar portion is always secured. But under the old agreement, out of the 100% billing, everything in U.S. dollars. But when it comes to actual payment, the lower government will pay you 10% of what you bill in 15 local currency. And they will convert at the time of payment. So, the receivable is still in U.S. dollar. But when I physically get paid 10% will be paid. So, I got no Forex issue until they pay me, if I keep the local currency, then I'm opening to Forex exposure. Now this 10% was not part of the securitization, so to speak, because they don't want to use what EDL pays for the energy that they sell to Cambodia and convert into cheap and then pay us. So, they separated the 2. So, we are only always paid the 90% U.S dollar, 90% U.S. dollar. 10% kind of like they drag their fee, pay a bit, don't pay a bit. So, over time, it's kind of like a snowball. So at the time of this exercise and settlement, we have effectively USD 62 million of outstanding receivables that is overdue. And almost everything is the portion. But no longer is going to be paid to us. So, It's U.S. dollar. So this $62 million, we also structured in such a way that they will be able to pay us and service the installment without us having to ask them for money. So, we look at how much to sell to Cambodia, what price, then we look at how much they have to pay us plus must have enough to service the installment of this restructured loan. So we don't have to ask them. It's now secured, no more portion in the future.

So in a way, you're reducing your exposure to Forex, you're also kind of converting it.

I don't have receivable issue moving forward. So, I literally solve it once and for all. And they also don't have to have a headache looking for money because it's all what ADC pays to them. You deduct what is due for the month plus service the long-term receivable. So effectively, we were going to get around in total USD 140 million cash from them a year.

Is that one of the reason why your receivables dropped quite a bit?

Yes, but you can see that long-term has got figures now.

So there's a question. The account receivable and prepayment noncurrent with an amount of $246.4 million, is that a term loan for EDL? If yes, with such an arrangement, can we assume that there will be no account receivable impairment at all for FY '25?

There should not be anything that is significant for EDL because, under the accounting rules, even though the receivable is current, we still have to make a small percentage of this provision just like the banks. Now, the standard has moved to cover beyond banks to insist that you must still provide, let's say, 0.5% or 1% provision, but it's small. It's small. So, we are not too concerned with that. Anyway, that's just a provision.

What's the total 140?

This year, the revenue will be USD 138 million roughly. So, plus the servicing of the loan are going to get around 10 this year receivable or cash received. Then we pay royalty. So, our EBITDA margin will be around 90-odd percent. So, that is the cash that we're going to collect every year. So, the cash every year is going to be around almost USD 140 million, and that's about MYR 60 million.

In a way, does it also help, I would say, eliminate the cash flow constraints for the Laos government by doing this?

Yes. So a lot of these are prompted by the fact that they ask us to help them restructure certain things. So, we help them in that way. But beyond that, we are also offering. So, we're also working on other projects to help them and at the same time, help ourselves.

I understand. I mean, fair game; you have to take on some risk as well. Rondy?

So, there is another question on the RE division. So, Mega's cash balance has decreased significantly after the upfront payment for the water rights. Will this affect the company's ability to bid for larger projects? Additionally, what is the growth strategy for Renewable Energy division moving forward, especially since Mega First was not selected for LFS 5?

Although the net debt position has gone up by around $400 million, net debt to equity ratio is still only 24%. I want you to imagine that in any infrastructure project investment, assuming you have a debt equity ratio of 2018, what does it really mean? It actually means that you're going to have a net gearing of multiples. But for us, you just look at the net debt of $878 million, that is equivalent to less than 1.5 years of our cash flow. So, we can very quickly rebuild. We can also quickly deploy more cash if we need to expand by gearing up further. So, we are comfortable. And don't since 2020, since we started, we have in total deployed around 2.2 billion CapEx in capital, either buying subsidiary, build new projects, acquire land or build the plant.

Almost 4, 5 years of cash flow actually.

So that's why you look at the total net debt after 5 years; it has only gone up by how much, $20 million, but we have done so much. And you can see from the profitability.

You have how many?

You look at this. I mean, we have grown to almost $0.5 billion net profit attributable to shareholders compared to the first year of operation of Don Sahong, which is 2020. Before 2020, it's only $100-odd million. So, I assume Don Sahong's full-year contribution in 2020. I still managed to grow my earnings by almost 40%. Of course, even with the deployment of capital, my net debt is still reasonable. And out of this $2.2 billion of capital deployed over the last 5 years, about 800 million has not yet become productive. But more importantly, the royalty they invest a few hundred million is future.

It's like you're paying for music rights to use all the way.

Yes. Projects, we invested a couple of hundred million not yet producing. So out of the $2.2 billion that they deploy, $800 million is still unproductive. And all the capacity expansion, building new factories in the Packaging division, so if you look at it from around $1.4 billion to $1.5 billion that is already productive, my incremental profit is 159 million net profit. That's not too bad.

It's like playing a Monopoly game, you bought all these assets, but the harvest has not come back fully, the harvest is not come back fully.

So, we are investing in immediate return projects. We are also investing in longer-term projects, for example, land. In the past few years, we have been buying quite a fair bit of land that serves as reserves for our Resources division. And these are definitely appreciating assets, definitely better than investing in wine, for example, because these rocks underneath the land cannot be. And if you look at the first reserve that we bought and compared to today, the prices have just kept on escalating because once you bought it, once you blast it, it depends with the need. So, we have been strategically buying this to enhance the long-term value of this division. Why do we buy land for even solar and food security? Because ultimately, you want to invest upfront in the greenhouse and others, it's better to build on the own land rather than to rent from a Landlord, government or otherwise. So, we decided to manage the risk is better by buying the land. And anyway, land today is continuously going up. So, by paying $2.50 per square feet, the downside is very, very limited.

I think there was just a clarification on this person. For the major turbine maintenance, it has started in December 2024? And when will it be completed? And the cost of USD 3 million to USD 4 million will it be charged as OpEx in 1 quarter or split into 2 quarters?

The first unit of turbine should be up and running again sometime in the later part of March. Quarter 2. So all in, it will be around 3 months plus, which is within our expectation because right all the wall, whenever somebody asked me, I always say about 4 months. And the overhaul cost for one turbine, it will probably come up to around $2.5 million, not $3 million to $4 million, around $2.5 million, but depending on what we discovered. But so far, I think it should be around 2.5 million and that will straddle between last quarter, which is the one that we reported. And the bigger chunk of it will be in this quarter. So, we already had some recognize last year. So, this year will be the balance. And then, of course, come this year-end, we will again start the second turbine overhaul. So, you can safely assume will be at least $2.5 million. And that will not be capitalized. Unlikely it will be capitalized, we will just flush it up.

Expenses are fully expensed off-line. Understood. I think the second part of the question, Rondy, is already covered the accounts receivable from Neil. Yes, it's covered already. I'm trying to look under. This is an interesting one. RE division, considering HeiTech Padu could back $1 billion hydroelectric project recently. I'm wondering if MFCB is seen as a leading operator EPCC contractor with Don Sahong's credentials for hydropower projects in Asia. Could you explain how MFCB is different from other players in Malaysia? I don't know you brought HeiTech Padu, but yes, that's it.

I mean, first, we are not EPC contractor. We are investors. Of course, we have our own team of expertise, but we will always engage EPC contractor to build a plant for us. We are still looking, but I would say we are a little bit different because we are more cautious in evaluating projects. We are not willing to commit to a project where the return is low or we are not willing to commit to project where there is inflated costs for whatsoever reasons. And we are looking at both Laos side and also Malaysia side, all right? Just actually, I haven't answered the last part of your question, Rondy, is yes, we didn't get LSS5, and we are not eligible to tender for LSS5+ not because of our incompetency. There's a lot of forces in play, which kind of make it impossible for now. Having said that, we are still looking at various opportunities, including the battery energy storage system, including other possible technologies that are being explored. We have some partners that are able to provide certain technology to us in building not just pure solar farm projects. So we are still working on it. And hopefully, we can get some of these projects as well.

On BESS, since you mentioned it, there's actually a couple of questions on that. So one person is asking, would MFCB participate in the BESS program? So I suppose that's a yes.

We have already submitted to qualify ourselves as one of the potential bidders.

And if yes, what are the economics of BESS like? Does this mean that Tenaga is renting battery storage from you as the bidder?

So far, the exact business model has not yet been finalized by Tenaga because ST has only asked for a prequalification. They want to know if you have the ability to execute that kind of project, which is very new in Malaysia. So, there are certain minimum credentials needed. And with these minimum credentials listed by ST, we do qualify. [indiscernible] doesn't, for example. So, not everyone qualifies. We are also working with a technology partner because none of us have done it before. None of the Malaysian companies have done it before in that size for that size because it's 1.6 gig 4 hours. And there are only 4 packages. So, now how is that going to work in terms of dollars and cents? I don't think that has been finalized. But the way we look at it is it's got to be a form of capacity charge because we don't own the generation side. So, if you provide the battery storage capacity, we don't know when Tenaga will charge it up and stall and when they will release energy from the battery. So the only way that we think can work from a commercial standpoint is you pay me regardless of whether you use it or not.

Battery charge kind of concept. If not we prepare the capacity for you, if you don't use then how? And we don't know whether you're going to use it or how much you're going to use it.

Is there like a pick-pay-or-take kind of?

No, I mean the actual commercial term has not yet been discussed or even defined. But I'm only sharing my view to say that it's got to be some form of a capacity charge. I provide the capacity to you, you pay me. You use it, don't use it, is your problem, not mine.

Is that more of also a risk hedge for the provider who provides this CapEx?

So it's got to be a capacity charge. Of course, what kind of price makes sense that's part of the tender process. So obviously, if you want to go in, first, you've got to be cost competitive. You've got to choose the right technology, you've got to choose the right design, you got to choose the right system. You make sure the cost is competitive, then only can tender for a lower capacity charge.

Since you mentioned that for this prequalification, there is not many with the ability to execute. How many people do you think are like Mega versus basically able to take on this project?

I mean, Ytel doesn't qualifies, for example, Malaka doesn't qualifies, Tenaga doesn't qualifies because they need you to have the experience of a certain size of generation capacity. So if you have not owned a power plant before.

Yes. And it's not a low investment. It's a substantial investment in dollar sense. Maybe since you mentioned Pekat in your answer just now, there's a question with regards to Pekat actually. Pekat has released a good set of results, mainly driven by the acquisition of EPE Switchgear. Can I get your view on the long-term prospect of this EPE switchgear? And then another question is, are you going to eventually sell 30% shares to Pekat?

I mean EPE or rather the vehicle that we invested in is called Apex and not EPE. Apex owns EPE, which is a switchgear company. Mega First has a 30% stake in the company. Now this company does switch gear. In Malaysia, there are only that few suppliers, around 3 suppliers that dominate the market. And there's no like dominant player versus very small player. So it's kind of like quite well allocated. And what is the prospect? The prospect is if you see the energy transition road map that Rafizi announced back in 2023 and what Tenaga announced that they're going to spend about 90 billion to upgrade the grid and the infrastructure and the robustness of the transmission and grid, all the switchgear. Obviously, the demand for switchgear will rise. So when Pat did this deal, there was a profit guarantee of $16 million. And last year, they already exceeded the $16 million. And based on this outlook for switchgear because of what the Malaysian government wants to do in terms of upgrading the grid, I think it will have growth prospects, good growth prospects. So I think last year, they made about maybe about 20 million instead of 16 million. So $20 million or 30% means we will equity account 6 million a year starting this year; that's what I mean.

The profit guarantee for 1 year, 2 years?

For 3 years. But given the current scenario, it looks like the profit guarantee is academic.

Maybe I'll ask one more, then I'll pass to you, John. So yes, this one is about what you mentioned last quarter. Recall that last quarter, Mr. Yeow, you mentioned that the Laos government want to monetize more assets in Laos and that Mega First is looking into it and are negotiating something with them. Any interesting update to fit us on that?

No update to share, but we are still working on a couple of leads and projects with aimed at helping out the government to monetize some of their future cash flow.

So this would be something like what we have done with Don Sahong to take on some equity stake or something?

It could be equity stakes in the power plants. It could be anything.

Yes. So just to give a little bit more detail on the construction revenue. So Ivan is asking, could you give the breakdown for the $383 million construction revenue between fifth turbine and solar farm? I think you did give it on one of the slides, right?

If I can recall, Par is around $27 million, or $22 million or $21 million. The balance is Don Sahong.

This is with regards to solar, so bunch together. What's the IRR rate? I think he's looking for whatever you do either in Malaysia or Maldives. What is the IRR rate before you embark on a solar project roughly?

For Malaysia, I mean, of course, different countries, we have different hurdle rates. For Malaysia is slightly lower. So it's probably around 8.5% to 9% IRR project. For countries like Maldives, we would require higher of at least 10% or more.

Related to that, in terms of the tariff rate in Maldives, is there a huge difference in between -- I'm obviously here local currency, but the Maldives tariff rate, is it public information? How much is the tariff rate that you're getting for your Maldives?

I don't know how sensitive it is, so I won't disclose it. But in general, it's much higher. But having said that, the cost of construction is also much higher. You can see earlier in the pictures, it's all sandy. So it means that you have to anchor it more your maintenance side will be higher, and they're all very small. So the cost of operation will be much higher. And they have their own local requirements and all the materials that import will be also much more expensive, just like if you were to buy things in Africa. So even the panels are more expensive, the steel bars are more.

Labor cost is labor cost expensive?

The labor costs are not more expensive materials and imported services and materials will be much more expensive.

I understand. Still on solar and probably my last one before I pass to Rondy, what's your view on solar energy prospects over the next 5 years? Could there be an oversupply when you see other people coming in, competitors coming in, especially solar energy farms. I mean there are still quite a fair bit of opportunities in Malaysia but you cannot immediately roll up all these capacities because the grid may not be able to take it. So it's got to be rolled out in tandem with Tenaga's upgrade of the robustness of the grid in order to take on more intermittent energy generation.

Yes. So ST has done a very good job in terms of managing the rollout. But of course, every time they roll out something, let's say, whether it's 2 gigawatt or in this case, maybe 5 plus 5, 5 and 5 plus probably end up 3 gigawatt or even 4 gigawatt, there will always be a lot of interested parties. I think I mentioned this before because the hurdle is low and everyone thinks that it's a very good project to go into. So you have people who are not in energy also go inside. And there are a lot of -- it attracts a lot of interest from influential people. So that sometimes complicate the whole process. And we just do our best in China.

I just have one last question. I think this person wants to clarify again. The lower net royalty expense that is alluding to your USD 4 million savings, right, coming from the royalty of payment about USD 6.9 million, minus out from the annual amortization of USD 3 million.

Yes.

Let's move on to perhaps because first question was on the plastics. We move on to packaging.

Just let me clarify the number. The royalty saving for this year is 6.42 million. So if you minus the amortization charge, 3 million. So it's about 3.4 million.

Okay. So first question before even the webinar started was from -- So his question is, if the packaging business is so competitive, would it be better to sell it to someone else? And related to that, what's the competitive advantage for MFCB's packaging business over other players within the market?

I mean the packaging business is not a bad business, right? It is a growing business, especially for flexible packaging, flexible plastic packaging. Even until today, flexible plastic packaging is still considered as one of the most environmentally friendly ironically because the amount of material that you use is so little compared to hard packaging compared to those hard plastic cases and it's very robust. It's very versatile. So it is still a preferred packaging material. And that industry is a big industry around the world, although there are many players in it and it's a growing industry. So as in any business, if you are long-term business people, you have got to live through economic cycles, you've got to live through product cycles and you've got to live through technological development. Today, we are hitting a bad patch, we are not alone, all right? I think the whole world is. And it goes way beyond packaging. Which industry is not suffering today because the whole economy is dependent on consumption. consumption is weak in China for reasons that you all know. Europe is extremely weak as well. And now there's a risk of U.S. also being weak because of all the kneejerk reaction from the new U.S. government policies. So people get very nervous, right? And China, everyone knows that is weak. That's why they are exporting a lot of excess capacities to the world. Europe basically did their own grave. They never innovate. They never make the right policy choices that is beneficial to the people rather they pay patronage to the big brother. So that one is we even as an economy, they are competitively weak. So you see how they handle the energy prices, Europe is no longer competitive full stop. So, they will be eaten up by economies that are becoming more and more competitive, especially China. So when consumption is weak, everything gets feels a rippling effect, including packaging, including mining, including even limestone so you can see a lot of nickel mines go into trouble because there are just too much nickel mining because of EV and now slows down. So prices have also collapsed. They also mine less, mine less means we sell less limestone, right? So it has a rippling effect across a very broad economy. So as business people, because we have to go through all these cycles in this down cycle doesn't mean you sell, right? We just have to look at the industry and ask yourself, is this still a good industry to be in. A lot of people also ask me about, say, for example, it is a good industry, right? We are in a very strong position. Yes, there is some setback now because of all these policies affecting the automotive industry and how China is reshaping the entire industry and how the combustion engine is kind of like in the toilet zone in the don't know where to go. So the whole supply chain will change. It's like those days when LED lighting was first introduced. FILSON lighting becomes cheaper and cheaper and cheaper energy signal becomes cheaper and cheaper and cheaper and cheaper until they just die of natural gas, especially the supporting industries. So whether packaging will be replaced, answer is no. We are in the right segment. We are in flexible packaging. We are in paper packaging. Our R&D is focusing on recyclability. We are working closely with our multinational clients to come up with environmentally more friendly material like biodegradable material, mono material solution so that it facilitates recycling. So we are quite happy with that industry development. We may face short-term consumer demand down, but that is a passing phase, okay? So we will continue to work on our product solution. We will continue to work on our manufacturing efficiency. Unfortunately, our capacity is coming in at a very bad time. We just have to tighten our belt a little bit, conserve cash a little bit, weather this true and then hopefully, we will come out stronger. There is a funny comment. This is plastic packaging industry won't die, even Donald Trump is going back to plastics and the Europeans are cutting back on ESG. I mean, to be honest with you, is paper straw more environmentally friendly than plastic straw. Actually, you don't know, right? Especially for flexible, if you just imagine if you're buying your twisties, how would you want it to be packaged? And you want glass bottle, okay? Do you want paper pouch? Yes, even paper pouch, there must be some lining which will still be right? So it's still the most versatile, most cost effective and most durable and environment the most friendly. I always tell people whatever alternative solution that the world is coming up with, it's only to slow down. You cannot reverse the trend. You can only reverse the trend if the world slows down in consumption, which will never happen. Try asking Americans to consume less always, right? Try asking the emerging markets, they have new farm well. They are now wealthier you say, please stay with what you eat today, stay with 2 pairs of shoes, don't buy more than 2 pairs of shoes, forget about handbags and all those. It's not going to happen, right? So when I saw Rafi's presentation in the renewable energy. Everybody. There's some technical problem at the live stream. They are currently fixing the disconnected issue. So please wait a while they fix the problem. Thank you.

Good afternoon, everyone. John here again. We do apologize. Apparently, the entire WiFi for the office just got interrupted. We're still trying to work on a work around. I'm teetering on my phone right now. So if you see a bit of a lag, we do apologize for that. Right now, let me try to bring up [Technical Difficulty]

I've lost connection as well should be on. The DSC staff is still not connected. So I'm using the hotspot you're connected, right? I'm connected on the main one who is broadcasting. So guys, while we are trying to bring up the slides, I do apologize because one Zoom cuts us off. The questions that you have posed earlier has gone with the wind, put it this way.

Do you mind for those questions that we have not answered, we do apologize. I mean the whole WiFi is down for the building. Could you post those questions back again? Thank you so much for your help, and we'll endeavor to answer especially those on Edenor, those on the other business units that we have not answered yet. The hospital and the food security. That's right. Okay. Thank you, Laurence. Now they can hear us. Thanks Laurence for, dropping the question. You see the slide on your end because I can't connect on this one. On your end, you can see the slides. you just show your slides because I have it connected here. All right. So we're back. I think we were halfway through packaging is now, right? Yes. So I think there are a few last few questions on packaging. First one is, does the put option for Stanta minority shareholders have an expiry date? And secondly what is the plant utilization rate on packaging? And lastly is the tariff situation from global trade war. Is any of the packaging businesses exposed to exporting to U.S. In terms of the capacity utilization on average, is around 60%, 65% because it has slowed down. So we are working hard to bring it up again. The put option for Star minority shareholders. Okay. Have any expiry date? Yes. They are only allowed to exercise that put option on the third anniversary and fifth anniversary, okay? So the third anniversary has passed. Now the fifth anniversary is next year, okay? But maybe I can give you a little bit of background. This put option was given by us to them because when we bought over Stanta, the Indonesian party doesn't know us, all right? But there's a strategic reason why they want to be there. And there's also a strategic reason why we want them to be there, okay? Because we act as a team to service multinational companies as a source, 2-pronged strategy, all right? So they need us as much as we need them. And it's highly unlikely that it will jeopardize that because it's not a win-win for either of us, right? But we just give them the option in case we, as a major shareholder, start to be funding because the usual question ask, not in control, are you going to load cost you going to take up money Indonesians are familiar with what Malaysians do as well. We are also familiar with what Indonesians do. So they are afraid that we will kind of short change them. But we, of course, assure them we don't do such thing. And over the last 4 years, we have 3.5 years, we have also demonstrated to them that we don't only not load cost, we reduce cost. So nobody charges the company anything, all right? In fact, we reduced costs. We continue to pay dividends and to them based on the cash flow but we did tell them we're going to expand, right? So far, if you look at the profitability of Star, it has sustained very well. despite the economic environment and the challenges that they face.

I understand. The 60% to 65% utilization, Wei Hong is asking, does that include the new capacity or existing capacity? Exclude. Okay. And with relation to that as well, the packaging business, is it possible that MFCB defers the CapEx spending and just to just pull through the oversupply, the overhang and then wait. I mean, I thought the last quarter, you already done that, right? If you wind back, these 2 plants were supposed to be really last year, beginning of last year. We already try to push back waiting for the market to be better. But once you start, you can't perpetually push back, all right? So it needs to happen. But we will slow down on the machinery addition, right? So we start with 2 lines, and we hold back. And then we wait until the market kind of like stabilizes and recovers, then only we will continue with the expansion. But building the factory can stop, right? You can say build halfway and then stop. So we have completed anyway, this is a 5- to 10-year program in terms of expansion. So we will be able to carry it, and we will definitely carry it until such time. I guess the last question is about any exposure from central to U.S. clients. The tariff have any impact? Paper side, yes. Flexi side, no. Flexi side is really this region, including Australia, New Zealand and this region, maybe a bit of Africa, a bit of Europe side, but not to the extent of U.S. paper, yes. So far, we have not gotten any indication about tariff, even for the reciprocal tariff, there's no details, so we don't know. So we have to monitor it carefully. Flexi side is really this region, including Australia, New Zealand, and this region, maybe a bit of Africa, a bit of Europe side, but not to the extent of the U.S. But paper, yes. So far, we have not gotten any indication about tariff, even for the reciprocal tariff, there's no details, so we don't know. So we have to monitor it carefully. Even if there is, if it is across the board, unlikely they will disrupt anything. Any indication on how large this customer is in the U.S.? U.S. is around 30% of our paper market. Okay. I don't see any more on packaging. Maybe we can go to Resources. There is a few questions... Yes, why don't you start on the resources. On the resources, there is: Understood that the CapEx allocation for resources is very small. Given the regional demand and general market is positive, margin is recovering, would the group plan any capacity expansion CapEx for the Resources division? Okay. Not for the time being. Just bear in mind, we've got to look at it in context. We had massive expansion in 2015 to 2017, '18. And we have been trying to grow our volume so that we bring up our utilization rate. Today, we are not full year. We are producing about 0.5 million tonnes. Our capacity can do up to 600,000 tonnes. So we do have a bit of room. And within this 500,000 tonnes, we also have some filler business, which we can easily remove and replace it with stronger customers, if you like. So we are ever ready to expand. But we just felt that given the macro environment, given the supply chain disruptions that happen every now and then, we will rather be cautious than to go ahead and expand now, okay? So we would rather defend the margin, strengthen the customer base, have a better sales mix, focus on energy focus on manufacturing efficiency, bring out the profitability and hold it there for the time being because we can still grow, it's just maybe limited, but we will try to strengthen the customer base. Understood. Resources wise. There's another question on resources. The customer's plant shutdown was for temporary or permanent, which to this customer in what industry? What's the reason behind the 2 large shipments delayed? And where is the market or the destination? The shutdown is routine. Every now and then they will shut down. But the one relates to steel industry. And steel consumption is not strong. Somehow construction activity seems to have slowed down in Malaysia. So that's affecting their sales as well. So therefore, it's also affecting our sales line to them. But this particular shutdown is routine, all right? They will come back. The delay in shipment is not really a delay in shipment. It is a cutoff. So our management report actually, the sales are in there. But when it comes to the audit, they look at the exact date of transfer title. So our CI, for example, haven't reached, therefore, we cannot recognize. So you push it to January. It's a sales cutoff adjustment because for this particular customer, it's in the eastern part of Indonesia. For this customer, they will accumulate right? They aggregate everything because they chartered [indiscernible] and it's not like every now and then. So each time you send is like tens of containers, tens of containers. So there's an aggregation method. So we don't do many shipments. So when the shipment is done, then you see the cutoff and then you have to make adjustment, but it will show up in January and rise. Understood. Okay. I don't see any more resources. Can we move on to, yes, I don't know. Yes. So there were a few questions that of my memory that I was looking at, some of them did not repost back. But one of it is in terms of the CapEx being put in, or for other words, other investments being put in, do you see any light at the end of the tunnel in terms of... Maybe I will just give you a bit of more info on the background, and also the expectations, even from day 1, we know it is an old plant. If it is not an old plant, we will not have gotten it for free effectively. And that old plant cost PTT and plantation $1.1 billion to build the cost. When we took over the book value was $400 million, and we paid literally nothing, okay? And our assumption is, okay, so I can move investment costs. Therefore, if I can make sure the plant runs well, I will have an advantage over many competitors. So that was the assumption that we went in. But because it's a 30-year-old plant, we know we are going to face a lot of hiccups when we try to change it. So at that time, Mr. AK told me, I think we can do it within 3 years. But he cannot shut down the plant and do an overhaul of the entire plant and shut down for, say, 9 months to a year, he can't because there's only one plant. If you do that, your workers will be all gone, your customers will be all gone. So it was a deliberate strategy to stagger that refurbishment and upgrade work. So that was intentional. And when we go in, we also realize that, hey, the plant design is not efficient. The process flow is not efficient. There are a lot of bottlenecks here and there because oleochemical plant is, there's a lot of inter feed. I produce something I feed into this. I produce something I feed into this. So the capacity of the entire chain of processes, there are bottlenecks. So when there's a bottleneck, your efficiency can only reach the capacity of that bottleneck. You can't go beyond that. So the whole plant is designed not in the way that AK and [indiscernible]. So what do we do? We say, okay, for the sake of longer term, put in some money and make sure that the plant can run efficiently, smoothly, without any bottlenecks. So there are a few key initiatives that they started. The first one they started was on alcohol on the fatty acid. So fatty acid, those days is the split. Basically, there are many, many carbon chains, right, in the basic fatty acid. So you're going to cut it. So they use a column. So you have C6,8C10C,12C,14C, 1618. But because they have only a few pillars [indiscernible] is not pure. So it goes in, it comes up maybe 3 categories. Then the category goes in again to split even more. we got big projects again, it's tapering off. So those deployment of 800 billion, 60 billion for now based on projects on hand is not going to be that high. So we will have an opportunity, at least in the short term to rebuild our cash. Then hopefully, bigger projects will come.

Understood. Yes. We've witnessed a huge sell-down in Meta First shares lately. Is there a reason for this? And in your opinion, what is the fair value of MSCB shares going forward?

I mean I bought at 440. So... I think the recent weakness is pretty much broad-based equity risk is rising. So -- but fundamentally, today, you're talking about -- let's say, if I -- even based on normalized earnings, why I always emphasize on normalized earnings because there are so much noises from construction profit to associates swing up and down to all these option costs, all this revaluation of investment accounting kind of stuff, a lot of it not all, but a lot of it -- so I'm trying to strip out the noises and tell you on a recurring basis, our business, what can we deliver, right? So last year is $480 million, which -- I mean, our market cap now is about 4 billion...

10x. So it's...

Right? Based on cash flow is even maybe 5x of the. And ours is real cash. Ours is not accounting profit, our is real cash. So am I worried? -- answer is no, as long as my cash deployment is reasonably attractive -- reasonable returns. That's why I show you that increase in net profit attributable. I'm trying to work on a format to show you how the capital deployed result in increase in earnings by division, maybe for the next briefing. But for now you can see how it steadily grows with cash deployment. And this is on a normalized basis. If not then I got to strip this out penalties, fire insurance claims, I'm stripping out all those. And if you want to know what items I strip out, I even share with you, right? So it's not like you cannot reconciled.

Understood. Rondy, last one from you.

I think there is one question which has been asked a few times before. Basically, out of all your business segments, which one would you think can be spin off first?

Everyone wants to spin off Packaging wants to spin off, I want to spin off Food security, eventually, they want to spin off. So I think food security will take some time. I think if anything, the nearest will probably be packaging. But even then, it's not going to be in the next 1, 2 years, probably in the next 3 to 5 years, hopefully. IST also needs some time. The industry is not conducive for business, but we are controlling our cost so that we don't lose money or even if we lose, don't lose too much money. But the balance sheet is strong enough. So their cash is strong enough, so it shouldn't require further injection of cash.

Mr. Yao, Thank you so much again imparting your insights and sharing with us the audience and both Rondy and myself, transparency of the company. I think this is an ongoing request. They are asking for Mr. Goh to impart words of wisdom. And I just convince -- but again, thank you so much for all. We do apologize if we have not answered any of your questions. Do let us know. I mean, I noticed the Slides is not up yet on the website, but it will be I think Yes, I just checked this now. There's also a comment, Mr. -- for you guys to update your website updated. But you tell them Berkshire Hathaway website has not been updated since '90. Anyway, -- we look forward to hearing your questions. Please do send them into the IR address. Mr. Yao will answer them for you. Thank you for attending. We look forward to seeing you guys in the quarter 1 briefing end of May. And with that, we end this session today. Thank you. Have a good weekend.