News

• Contract for cogen plant. Mudajaya announced that it has been awarded a RM55.5m contract by Siemens for the Pengerang cogeneration plant civil works. The works are scheduled for completion by Feb 2016.

• Optional works on the cards. Apart from the contract, there are also optional works v alued at RM157.9m should the client (i.e. Siemens) opt for it to be done.

Comments

• Positive news flow... The job scope of power plant civil works falls within Mudajaya’s forte. Media reports had previously tipped Mudajaya to be the frontrunner for t his job, although it was as a main contractor rather than subcontracting role.

• ...but more needed. YTD job wins currently totalled RM431m, brining Mudajaya’s orderbook to an estimated RM900m. This translates to a thin cover of only 0.7x FY13 construction revenue, providing little earnings visibility. Mudajaya needs to significantly ramp up its orderbook base to make up for its sizable jobs that are nearing completion (i.e. Janamanjung plant, Tg Bin plant and Chhattisgarh IPP EP contract).

• IPP earnings needed to fill gap. 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. Commencement of the plant is crucial in contributing to Mudajaya’s associate earnings which is much needed to fill the earnings gap from its depleting orderbook.

Risks

• Slow orderbook replenishment.

• Further delays in the operation of the Chhattisgarh IPP.

Forecasts

• While we assumed no further job wins for FY14 apart from the windfarm (RM375m) EP contract secured in Aug, we are in no hurry to raise our earnings. This recent job win will mainly contribute to FY15-16 earnings which are captured in our RM500-800m annual orderbook replenishment for those years.

Rating

SELL TP: RM1.53

• We are cautious on the outlook for Mudajaya given its thinning orerbook balance which provides little ea rnings 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 maintained at RM1.53 based on a 20% discount to SOP. This implies FY14 P/E of 23.2x but a more palatable 12.9x for FY15, assuming the Chhattisgarh IPP can commence by then to push for an earnings rebound

Source: Hong Leong Investment Bank Research - 2 Dec 2014