News

Mudajaya’s India IPP power venture – RKM Powergen P/L (26% associate), has signed a coal supply agreement with South Eastern Coalfields Ltd (SECL) for the supply of coal for Phase 1 of its power plant which consists of 1x360MW (total capacity of 4x360MW).

The agreement shall remain in force until the end of 20 years period with an annual contracted quantity of 1.69m MT with calorific value of 3,300-3,600Kcal/kg. The estimated coal cost is ~US$25/MT.

Highlights

It finally comes… As indicated in our report “Twin Catalyst Effect” (date 17 Jul-13), the resolution of the coal issue is a welcomed positive newsflow for Mudajaya. It also indicates that the power plant has achieved significant milestones, ranging from physical progress of the plant to the Power Purchase Agreement (PPA). Of note, the off-taker for 1x360MW is Chhattisgarh State Electricity Board for 20 years.

To follow suit… The remaining coal supply for the 1,080MW (3x360MW) should see closure soon as the installation of turbines, boilers and power generating-related equipment progresses. It currently has a 700MW tie-up with Power Trading Corporation for 12 years. We believe that negotiations are underway for a revised PPA which will see Mudajaya tie-up all of its power generating capacity with longer tenure.

Closer to unlock value… We estimate that the overall progress of the plant is >80% completed. Once fully operational, the IPP venture is estimated to contribute RM60m-70m/year (based on news excerpt). Mudajaya is one step closure in unlocking values for its India IPP power plant.

Risks

Delay in completing the India IPP project; Regulatory and political risk (both local and abroad); Rising raw material prices; Unexpected downturn in the construction sector; and Sharp depreciation in the Indian Rupee and US dollar.

Forecasts

Unchanged.

Rating

BUY

We reaffirm our view that Mudajaya will be able to successfully commission its India power plant. Meanwhile, the company has strong prospects to clinch civil works for the upcoming 1,000MW coal-fired power plant worth ~RM700m. Hence, we maintain our BUY call.

Valuation

TP of RM3.53 based on SOP valuation maintained (see Figure #1).

Source:Hong Leong Investment Bank Research- 10 Sep 2013