Highlights

Renewed interest… Mudajaya’s share price closed at a year high of RM2.95 recently, due to renewed optimism in the stock following the closure of its coal supply agreement for its India IPP (Independent Power Plant) (kindly refer to our report “Coal closure” dated 3 Oct-13). We believe that the share price momentum can be sustained as the company is expected to successfully fire up its power generating units. Moreover, another catalyst could come from potential jobs offering up for grabs.

Power generation… Mudajaya first started its India IPP venture in 2006 and after overcoming various hurdles, the plant is finally coming to fruition. The 1st phase of the power plant which has a capacity of 360MW is expected to be commissioned by end 2013/early 2014, followed by Phase 2 which has a larger capacity of 1,080MW.

As long as Phase 1 is successfully commissioned, the 2nd phase will fall in place accordingly as it is a matter of replicating the same configuration. The success in commissioning Phase 1 will see another round of positive reaction in Mudajaya’s share price and will be the inflection point to fully unlock its value in the India IPP venture.

Power jobs… Besides income from power generation, Mudajaya has created a niche as a power plant civil contractor. We believe that the company is a strong contender for civil packages for both the Prai Power Plant and Janamanjung. We estimate that the contract size for the former is worth ~RM300m and the latter RM700m-1bn.

Infra jobs… Power-related prospects aside, Mudajaya has also been reported by various news portals as a strong contender for various infrastructure projects. The first being Subang Skypark railway link worth ~RM300m, the next is the KIDEX expressway worth ~RM1.3bn-1.5bn, and the recently reported Central Spine Highway (Kota Bahru-Kuala Krai) worth ~RM1.2bn-1.6bn.

RM3.2bn prospects… In total, we estimate that Mudajaya has RM3.2bn-RM3.9bn (see Figure #1) worth of prospects to replenish its order book. Its existing order in hand stands at RM1.7bn (see Figure #2), translating to 1.1x FY12’s construction revenue.

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 are reiterating our BUY call on Mudajaya as we are encouraged by the progress towards successfully commissioning its power plant, thereby unlocking its value and also positive on the potential contract wins collectively worth RM3.2bn.

Valuation

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

Source: Hong Leong Investment Bank Research - 16 Oct 2013