News

Mudajaya has acquired a 40% stake in Amihan Energy Corporation (AEC) for Php26.4m (RM1.9m). Windelsey Inc and Visayan Wind Energy Holdings Corporation each hold a 30% stake.

In Oct-12, AEC entered into a Wind Energy Service Contract with Philippines’ Department of Energy for a 25-years exclusive right to explore, develop and utilise the wind energy resources within an 18,225 ha land in the province of Cebu.

AEC’s Wind Energy Farm will have an initial capacity of 50MW and expanded in phases up to 200MW over the next 5 years.

Highlights

Positive venture… We believe that this Philippines foray is positive for Mudajaya’s power-related project profile. However, the market is expected to be neutral on this development as investors’ priority will be on the successful commissioning of its India power plant.

1st Phase for >RM400m… We believe that the development cost of a wind energy farm ranges from US$3m/MW to US$4m/MW. Hence, for the initial 50MW, the development cost is expected range from RM465m to RM620m.

2nd bite in EP contract… We believe that Mudajaya will follow the framework for its India IPP venture whereby it is also the EP contractor. Assuming that 80% of the works are done by Mudajaya, this will translate to a potential order of RM370m to RM500m for the initial 50MW. We are expecting works to start as early as 2QCY14.

>11 sen/share… Assuming a debt-to-equity ratio of 70:30 and IRR of 15%, back-of-to-envelope calculation suggests that this venture will translate to RM64m to RM86m (11.6 sen/share to 15.6 sen/share) for Mudajaya’s 40% stake in AEC.

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 as it is still too early to impute the potential profits.

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.

Valuation

TP of RM3.53 based on SOP valuation maintained.

Source: Hong Leong Investment Bank Research - 29 Oct 2013