Deviation

• Needless to say, full year loss (ex. forex) of RM72m was way off our projection of RM36m PATMI (consensus: RM46m). The significant deviation was due to the unexpected loss posted in 4Q, effectively wiping out all cumulative gains of RM32m in the first 3 quarters.

Dividends

• No dividend was declared in 4Q. Total DPS for the year (1Q and 2Q) amounted to 6 sen.

Highlights

• Janamanjung cost overrun. The main reason for the loss was due to cost overruns for the Janamanjung power plant civil works (RM720m). Following the job completion, various costs that were previously unaccounted were booked into 4Q. Mudajaya has submitted some variation order (VO) claims on the job but this has yet to be finalised.

• Orderbook is thinning. Mudajaya’s orderbook currently stands at RM1.2bn, implying a thin cover of 1.3x FY14 construction revenue. Job wins have been slow with only RM431m secured in FY14 and nil for FY13. Mudajaya is bidding for several highway (e.g. KIDEX, WCE, SUKE and DUKE) and power plant jobs (Project 3B, 4A and Pengerang). However, we remain cautious in its orderbook replenishment potential as most of these jobs are either facing an uncertain timeline or implementation hiccups.

• Closer to firing up? Unit 1 for its Chhattisgarh (4x360MW) IPP in India is now undergoing synchronisation, a step which is close to actual commercial operations. After a long awaited delay, we reckon that Unit 1 could commence operations by mid-year.

Risks

• Slow orderbook replenishment and further delays in the commercial operations of the Chhattisgarh IPP.

Forecasts

• We cut FY15-16 earnings by 34-36% as we (i) reduce construction margins and (ii) scale back the commencement date of the Chhattisgarh IPP by 6 months.

Rating

SELL TP: RM1.31

• We are cautious on Mudajaya’s given its thinning orderbook and continued delays at its Chhattisgarh IPP which is much needed to fill in its earnings vacuum. Maintain SELL.

Valuation

• Following our earning cut, our TP is reduced from RM1.53 to RM1.31. This implies FY15 P/E of 17.3x but a more palatable 10.4x for FY16 once IPP earnings kick in.

Source: Hong Leong Investment Bank Research - 2 Mar 2015