KUALA LUMPUR (April 25): Mega First Corp Bhd shares have likely peaked following a recent rally to new all-time highs, and investors should stop buying the stock now, Maybank Investment Bank (Maybank IB) said and downgraded the stock to ‘hold’.

Maybank IB is the first from a total of five research houses covering the stock to cut its rating while four others still have ‘buy’ calls. Mega First, which operates a hydropower plant and manufactures packaging, has gained as much as 13% in the past week alone.

“Mega First’s valuation gap with utility peers has narrowed in recent months,” said Maybank IB. “The stock’s risk-reward now appears balanced, in our view, with near-term earnings-accretive events priced-in to some extent.”

Shares of Mega First have racked up a 32% gain year-to-date amid broad rally in the utilities sector. Bursa Malaysia Utilities Index, which tracks 22 stocks in the sector, has climbed 19% since the start of 2024 as investors bet on higher energy demand from a slew of power-hungry data centre projects announced.

Mega First derives more than half of its revenue from the renewable energy division, which also invests in commercial and industrial rooftop solar projects in Malaysia. The company mainly runs the Don Sahong Hydropower Project in Laos, generating up to 260 megawatts.

Don Sahong’s contribution to Mega First’s earnings is expected to increase in the financial year ending Dec 31, 2024, with the fifth turbine and a higher effective stake of 95%, Maybank IB noted.

Construction of the newest turbine appears to be “progressing well” with expected commissioning in July 2024, it said.

“Revised terms for the concession agreement for all five turbines have been finalised, and is pending formal approval by the Laos government by mid-2024,” the research house said. “We do not expect any deterioration in terms.”

Maybank IB is forecasting core net profit of RM455 million for this year and RM465 million for next year. That compares to the consensus forecast of RM449 million for FY2024 and RM459 million for FY2025, according to Bloomberg.

Further, Mega First still has “ample balance sheet headroom” for new projects, Maybank IB said while flagging possible ventures into farming with two entities set up in FY2023 and into hospital after the company bought a 1.3-hectare piece of land designated for a medical centre in Setia Alam for RM44 million in February 2024.