Results

• 3QFY14 results came in with revenue of RM209m (-47% YoY, -25% QoQ) and PATMI (ex. forex) of only RM1.1m (-97% YoY, -81% QoQ).
• Following 2 consecutive weak quarters (i.e. 1Q and 2Q) cumulative 9M PATMI (ex. forex) only totalled RM32m, which is down 75% YoY.

Deviation

• 9M PATMI (ex. forex) only made up 65% of our full year forecast and 60% of consensus which is below expectations.

Dividends

• Mudajaya has consistently paid dividends for the past 5 quarters (i.e. since 2QFY13). However, none was declared this quarter. Given the steep earnings decline, we feel that its ability to pay such generous dividends going forward will be limited.

Highlights

Hit by accelerated works. EBIT margin for the 9M period almost halved from 13.7% to 7.1% YoY. This was due to additional cost incurred for acceleration of works whereby the claims are still under negotiation. We understand that these works are largely for the Janamanjung plant 4 (RM720m) which is now almost completed.

Thinning orderbook a concern. We estimate Mudajaya’s orderbook to stand at RM850m as of 3Q, implying a very thin cover of 0.7x FY13 construction revenue.

Fire up pushed to 1Q15. Commercial operation of the Chhattisgarh IPP (where Mudajaya has a 26% stake) has been delayed yet again from 4Q14 to 1Q15. While the plant’s commencement has been a moving target since 4Q12, we draw some comfort in knowing that testing for Unit 1 has been conducted and the grid connected.

Risks

• Slow orderbook replenishment.
• Further delays in the operation of the Chhattisgarh IPP.

Forecasts

• We cut FY14-15 earnings by 21-29% as we factor lower construction margins and lower orderbook replenishment.

Rating

SELL TP: RM1.53

• We are cautious on the outlook for Mudajaya given its thinning orerbook balance which provides little ear nings visibility.
• Given the delays for the past 2 years, we feel that the market is unlikely to attribute any value to its Chhattisgarh IPP until commercial operation takes place.

Valuation

• TP is cut from RM1.91 to RM1.53 following the earnings downgrade. Valuation methodology remains the same, based on a 20% discount to SOP.

Source: Hong Leong Investment Bank Research - 1 Dec 2014