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Author: Icon8888   |   Latest post: Fri, 1 May 2020, 1:45 PM

 

(Icon) Mudajaya (1) - How I Feel About the Group

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Mudajaya has attracted some attention recently. Market talks is that they are in good position to secure contracts from 1MDB.  One of our honoured guest here, Mr Koon, has come up with his blog posting to discuss the company.  Mudajaya is a company he is very familiar with, so it makes sense to put his $$$$$ there (quote : Warren buffet). 

 

One of the strong reason for investing in Mudajaya is that they are about to commission their power plant in India and there will be quantum leap in earnings over next few yeas.  As somebody who has been trained in science all my life, I always like to double check what other people told me by putting some figures into the concept.

 

(1) contribution from Indian power project :  information is scarce as PLC usually don't make it available to small investors like us.  A quick check of various analyst reports showed that both RHB and CIMB analysts expect the project to contribute approximately RM80m earnings (net profit, I persumed). 

Mudajaya made about RM150m in 2013.  According to RHB, the Indian project will bump up profit to RM220m next year, representing 33% of the profit in 2014.  This is not exactly the kind of contribution that warrants a screaming buy (relatively less impactful compared to my pet project Ivory Properties, which upon Penang World City coming into full force, has potential to propel earnings from RM20m to RM100m.  I am working on the propaganda piece, watch this space).

But but but... please dont press the sell button for Mudajaya yet..., I will say more about this in the conclusion section.

 

(2) sensitivty to India Rupee movement : In August 2013, there was big fluctuation in emerging market currencies sending us all running for cover.  As the memory is still fresh, every time when somebody told me there will be major earning contribution from overseas, the first thing I do is to evaluate the exposure and potential downside.  I did a quick check, Rupee weakened from 16 to 20 (vs Ringgit) over a period of 6 months, a change of 20%.  Based on assumption of  the India project RM80m earnings contribution, a 20% weakening of Rupee will result in earnings declining to RM64m, a mere RM16m drop compared to group expected earnings of RM220m (about 10%)  I breath a sigh of relief.  It seemed that I need not worry too much about the unhedged currency exposure 

 

(3) 1MDB project :  Mudajaya has good chance to participate in the RM11 billion project as they advised 1MDB at consultancy stage.  That is what people said, let's assume it is true (very likely is true)

 

(4)  squeaky clean balance sheet :  Mudajaya has zero gearing.  How should you interprete this ? For the conservatives, this is a demonstration of financial resilience.  For the progressives, this points to a direction of additional profit potential.  Mudajaya seemed to realize that they are not working their balance sheet hard enough. Recently, they laucnhed a bond programme that allowed them to raise RM1 billion.   About RM200m has been earmarked for wind power projects, etc.  Let's once again put some figures into the concept.  Let's assume that they draw down RM300m to buy some land banks.  With their many years of contracting expereince, venturing into property development (in a big way) is a no brainer.  Assuming that the land generate 6 times GDV, total GDV is RM1.8 billion. Spread over five years, GDV per annum of RM360m.  Based on 15% net margin,  additional net profit of RM50m ?

 

Conclusion : short term re-rating would come from the India project.  Contribution not really that siesmic but not something to be scoffed at as well. Looking at it from capital preservation point of view, the incoming profit makes Mudajaya a defensive play, protecting it from downside by a 33% safety margin.  Ability to secure contracts from 1MDB will decisively re-rate the stock (which I think they are likely to get).  Gearing up balance sheet going forward sustainably will unlock earnings potential of RM50m to RM100m.  Put all these together might result in earnings decisively crossing RM300m within three years. I will leave it to you to ascribe the PE multiple and your own valuation.

To cut the story short, I dont mind taking some position, patiently wait for three years for 50% to 70% potential capital gain

have a nice day

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Labels: MUDAJYA

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Chart Stock Name Last Change Volume 
MUDAJYA 0.225 0.00 (0.00%)

  4 people like this.
 
Tang Michael Mudajaya is one lousy and dying slowly counter.......from nearly 4.00 rm to 2.70rm today.....it wont go beyond 2.80 ......too many sellers waiting...just see.....
06/03/2014 11:01 AM
plumberii Interesting, informative and clear analysis. Will study Mudajaya and then see whether to open my wallet. Ha.

Cheerio.
06/03/2014 11:04 AM
sense maker The missing part in Mudajaya's story is dividend. Without dividend, it is unlikely to move up in a sustainable way.
06/03/2014 11:38 AM
Ricky Kiat Agree on u good analysis.
06/03/2014 12:36 PM
Ricky Kiat keep on good analysis & sharing, u are second i follow after Mr Koon blog.
06/03/2014 12:41 PM
johnny cash who says no dividend in mudajaya??? there is
06/03/2014 1:25 PM
sense maker Sorry, I overlooked the small dividend they pay. I always like high dividend with few exceptions, of course.

Mudajaya has not been a rewarding counter in the past 10 years or so. It is intersting to see if its Indian story starts to bear fruit at last.
06/03/2014 9:39 PM
johnny cash i notice in the past mostly lembaga tabung haji will buy this counter.. but at rare times.. i think more instituitional investors like epf and others should come in.. then also i notice when this counter is dropping say for example no good earning report,,it will be well supported by BUY BACK from mudajaya.. this is the reason Mr koon, did mention that this counter cannot go much down
06/03/2014 11:51 PM
Alphabeta Forex exposure of a company can be unrealized gain/(loss):

a> Invested in a foreign country and having an investment costs to be translated into home currency. This give rise to unrealized forex gain/(loss), which is the gain for Mudajaya. It will be a realized gain/(loss) upon disposal of the investment.

b> Secured a loan in foreign currency, in this case, there will be a valuation forex gain/(loss) before the loan is due for repayment. This is also an unrealized gain/(loss)till expiry of the loan.

Those forex exposure that required hedging is the transaction gain/(loss), for example if Mudajaya needs to pay China equipment supplier in USD in 3 months time. They can buy forward the USD-INR exchange rate now before it is due for payment.

When company allocate capital (shareholder fund + borrowings)to invest in business. As an investor, we need to know the key drivers for profit, the quality of its assets, use of trade credit and equity multiplier effect.

If management cannot find suitable investment target for its excess fund, it should be pay back to shareholder in the form of dividends. Investing in a foreign associate with huge cost overrun, high interest rate, and risk of forex translation (though not critical) will definitely have a drag of future return on equity. The net investment cost in its Indian associate is RM 630 mil (RM 862 – 225 unrealized forex loss – RM 7 mil pre-acq loss) and form 38% of the total assets value. Whether the ROE can match the current 25% ROE is questionable (RM 862 x 25% = RM 215 million per annum). Moreover, its cost of investment of its 26% associates is still climbing.

Another area of concerned is its receivables in FYE 31/12/12 comprised of RM 128 mil of contra properties. Instead of getting paid with cash, its customers pay in kind. The contra value of these properties (did not disclose the type of properties) may deteriorate upon disposal.

Up till FYE 31/12/12, it has been using internal fund for its investment but this scenario has changed in its 31/12/13 quarter. It has pick up a total borrowings of RM 27 million. With lower order book and fast disappearing cash pile. It will need to borrow more in future to finance working capital and any future capex requirement.
09/03/2014 5:28 PM
Alphabeta Based on its balance sheet strength in last quarter ended 31/12/13, it still can pick up RM 500 million debt with ease.
09/03/2014 5:33 PM
Icon8888 alphabeta what is your view ? buy or no buy leh ?
11/03/2014 9:40 AM
Alphabeta In Malaysia, 3 sectors with growth prospect are Oil & Gas, Construction and Plantation. It is a matter of which stock has the high potential. I has place my bet on the Oil & Gas (Coastal Contract - previously recommended by Mr Koon) and Plantation (IJM Plantation) and i am looking for a niche player in the construction sector and Mudajaya fit the bill. I will buy in small quantities first and accumulate more on weakness. Mudajaya should perform better once it secured big ticket local job.
11/03/2014 10:19 PM
Alphabeta With India General election coming soon, nothing will move within a year if there is a change in government. The present coalition government headed by Congress already there for two terms, chances of a change is very real.
11/03/2014 10:29 PM
Icon8888 But if he choose girl friend like that, susah loh

Cannot too fat cannot too skinny. Cannot too fair cannot too dark. Good education background. Good character. Pretty. Kind. Intelligent. Wah Lao eh
11/03/2014 11:17 PM
Icon8888 Sometime agak agak can jump in already lah.
11/03/2014 11:18 PM
Alphabeta Agreed with you, however the average P/E of Malaysia market is already above 17, very close the historical height of 18. Mudajaya has not been moving in a big way.

Recently i am taking some risk investing in HS H Share ETF 2828 at HK 95. It is an ETF fund listed in HK with P/E slight above 7, it give dividend yield of around 2.6% with potential upside. I think the Chinese government have the financial muscle and the intention to fixed and reform the economy. Even Goldman Sachs also commented and pick HK ETF as undervalue investment. I also notice quite a number of local unit trust fund with oversea exposure pick this up as part of their investment portfolio.

Like you said, not possible to find the perfect girl and has to rely 30% on gut feeling. Having said that, we have to be careful not to place everything in one go if you are in doubt. Unlike Mr Koon, who is the Ultra-High-Net-Worth-Individual, he can take more risk.
12/03/2014 9:04 AM
Icon8888 HK.... No time to study yet.... Boleh land alone keeping me busy..
12/03/2014 9:39 AM
johnny cash http://www.theedgemalaysia.com/business-news/280199-construction-sector-anti-corruption-coalition-set-for-kick-off.html
13/03/2014 11:53 PM
johnny cash http://klse.i3investor.com/blogs/valueinvestorresearchklse/48343.jsp
14/03/2014 2:04 PM
Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ http://www.corporateinformation.com/ImageSvr/Chart.ashx?T=SS&C=C458JZ400
22/01/2019 12:21 PM
Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ >>>>

To cut the story short, I dont mind taking some position, patiently wait for three years for 50% to 70% potential capital gain

>>>>>


On March 2014, this stock was RM 2.70 per share.

Today it is 40 sen per share!
28/12/2019 12:56 PM
abang_misai During construction boom, Mudajaya can’t perform. Now in the doom time for construction industry. Completion is stiff. Some secured the jobs at slim margin. Worst there are others who are willing to do it at loss.

Boleh kah Mudajaya? I hope I’m wrong.
28/12/2019 1:13 PM


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