Results

• Mudajaya reported 1QFY15 results with revenue of RM165.2m (-55% YoY, -12% QoQ) and net loss of RM19.7m (vs PATMI of RM25.1m in 1QFY14 and net loss of -RM99.7m in 4QFY14).

Deviation

• The loss during the quarter was a negative surprise to us compared to our full year earnings forecast of RM40.9m (consensus: RM58.5m).

Dividends

• None declared.

Highlights

• Plagued by cost overruns. Management indicated that the loss was due to cost overruns on a certain local job (which could not be disclosed). Based on its orderbook, the only significant ongoing local jobs are the MRT and Tg Bin power plant. We were guided that the cost overruns should be one off and not expected to recur in the coming quarters.

• Orderbook continues to thin. Mudajaya’s orderbook currently stands at RM1bn, implying a thin cover of 1.2x FY14 construction revenue. No job wins have been recorded thus far YTD. 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.

• A silver lining in India? We understand that Unit 1 of its Chhattisgarh IPP has achieved physical completion and is now awaiting regulatory approvals to commence operation. While this is good news, we remain prudent and assume that commercial operation for Unit 1 will only begin in 4Q15.

Risks

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

Forecasts

• In light of the disappointing results, we cut FY15-16 earnings by 30% and 7% as we impute the effect of this cost overrun.
• While earnings growth appears strong for FY16-17 after coming off a low base in FY15, we caution that this relies heavily on the Chhattisgarh IPP powering up on time, a rather fluid assumption based on past experience.

Rating

SELL TP: RM1.19

• With the continued weak results, it is hard to justify anything apart from a SELL rating. We remain cautious on Mudajaya given its thinning orderbook balance and delays for its IPP which is much needed to fill up the earnings vacuum.

Valuation

• Following our earnings cut, our TP is reduced from RM1.31 to RM1.19. This implies FY15 P/E of 22.5x but a more palatable 10.2x for FY16 once (or shall we say “if”) IPP earnings kick in.

Source: Hong Leong Investment Bank Research - 1 Jun 2015