News

Mudajaya, through its 26% associate RKM Powergen P/L, has signed the coal supply agreement with South Eastern Coalfields Ltd (SECL) for the remaining feedstock requirement of Phase 2 of its power plant which comprises of 3x360MW (total capacity 4x360MW).

The agreement is for 20 years with an annual contracted quantity of 4.55m MT with calorific value of 3,300- 3,600Kcal/kg. The estimated coal cost is about US$25/MT.

Highlights

Coal closure… As indicated in our report “Here comes the coal” (dated 10 Sep-13), we are positive that Mudajaya has finally resolved the uncertainty of coal supply issue. Coupled with Phase 1’s (1x360MW) coal quantity of 1.69m MT/year (total contracted quantity of 6.24m MT/year), Mudajaya has fully secured the coal requirement for the operation of its 4x360MW coal-fired power plant in Chhattisgarh, India.

Of note, the off-taker for 360MW is Chhattisgarh State Electricity Board for 20 years, while 700MW will be sold to Power Trading Corporation for 12 years. The balance 380MW may be sold at spot rate or tied-up with a new power purchase agreement.

A step closer… With the coal issue concluded, the next step towards unlocking value of its India IPP power plant will be the successful test firing of its power generating units, whereby Phase 1 is expected to be concluded by year end/early 2014, while Phase 2 in the 2HCY2014. We believe that Mudajaya has the technical capabilities in getting the plant fired-up.

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.

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 and various infrastructure projects. 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 - 3 Oct 2013