KUALA LUMPUR: Mega First Corp Bhd will no longer profit from a China-based power generation subsidiary that accounted for 21% of its group earnings last year, as it is ending a Sino-foreign cooperative joint-venture agreement with Qixian Heat & Power Co Ltd.

It told Bursa Malaysia that the 22-year agreement, in relation to 60%-owned Shaoxing Mega Heat & Power Co Ltd (SMHP), would not be extended when it expired on Oct 22, 2017.

Mega First attributed this decision to the Chinese government’s ever-stricter environmental protection policies.

It said SMHP’s plant, being a coal-fired thermal plant, and its garment and textile customers were being directly targeted due to their contribution to environmental pollution.

“The tightening environmental protection policies have had the effect of significantly increasing investment and production costs while also substantially reducing steam demand,” it added.

Mega First noted that since early 2015, SMHP’s earnings had been falling rapidly due to these factors outside its control.

“The expiry of the agreement will result in the future loss of earnings contribution from SMHP. SMHP accounted for 34%, 27% and 21% of the group’s revenue, after-tax profit and net profit attributable to shareholders respectively in the financial year ended Dec 31, 2016,” the company said.

However, Mega First said, its board was confident that for the financial year ending Dec 31, 2017, the resulting lower earnings contribution from SMHP would be more than offset by the increase in profit recognition from the construction of the Don Sahong hydropower project and better earnings performance of the resources division.