STEEL pole specialist Mestron Holdings Bhd is poised to derive long-term profit from its latest venture into the renewable energy (RE) sector in view of the low entry cost factor with multiple expansion potential.
Yesterday (Sept 3), the company via its wholly-owned subsidiary Mestron Energy Sdn Bhd inked a share sale agreement with Maxcom Engineering Sdn Bhd to acquire a 100% stake in Liziz Biogas Sdn Bhd for RM3 mil cash.
The proposed acquisition of Liziz will formally put Mestron as one of the few listed companies in Malaysia involved in the biogas RE business.
A filing with Bursa Malaysia shows that Liziz is principally involved in generating biogas electric energy. The proposed acquisition will be funded internally via proceeds raised from Mestron’s recent private placement exercise.
“We are excited with the acquisition of Liziz which will allow us to generate a stable recurring income for the group in the next 21 years,” commented Mestron’s executive director Gary Loon.
“Liziz has been valued at RM12 mil by independent research company, Asia Equity Research Sdn Bhd, a company licensed by Securities Commission Malaysia to provide advisory in corporate finance and investment advice. This presents a value buy for the group.”
“The acquisition is in line with our focus on environmental, social and governance (ESG) initiatives and prepares us to expand our business growth beyond our core activities on the manufacturing of steel poles and outdoor lighting products.”
Appealing acquisition
In 2019, Liziz obtained a feed-in-approval from the Sustainable Energy Development Authority (SEDA) for producing electricity from renewable sources. In the same year, it has also entered into a RE power purchase agreement (REPPA) with Tenaga Nasional Bhd (TNB).
Liziz’s 21-year REPPA with TNB is expected to provide a recurring revenue of RM6.3 mil annually with the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin at 50%.
This is based on the two megawatt (MW) capacity of its biogas plant at Gua Musang (Kelantan) with an approved feed-in-tariff (FiT) rate of 39.75 sen/kW.
Moreover, Liziz secured an agreement with a plantation company to provide a minimum of 1,000 metric tonnes of fresh fruits bunch (FFB) daily under the BOOT (build, own, operates, transfer) agreement.
That will further secure Liziz with 21 years of palm oil mills effluents (POME) supply – the waste material required to generate electricity – via a revenue-sharing scheme.
Aside from that, the plantation owner has set up a collection centre nearby the biogas plant which allows the collection of palm fruits harvested from other plantations nearby.
“This will help us to sustain the supply of raw materials to the palm oil mill which supplies the aforesaid POME feedstock for the biogas power plant to mitigate during the low crop season,” explained Loon.
“Liziz has the potential to expand its capacity by another 1.2MW in two to three years given its strategic location that enables access to raw material.”
The expansion of the capacity, however, is subject to the miller’s expansion plan and the availability of TNB’s power grid quota.
It is also worth noting that the proposed acquisition will be earnings accretive for Mestron as Liziz’s biogas plant is expected to be fully operational by 2Q 2022.
At the close of yesterday’s (Sept 3) trading, Mestron was unchanged at 34.5 sen with 5.38 million shares traded, thus valuing the company at RM313 mil. – Sept 4, 2021
