Results

• Mudajaya’s 2QFY15 results came in with revenue of RM105.6m (-62% YoY, -36% QoQ) and loss (ex-forex) of RM12.3m (vs. 2QFY14 earnings of RM5.7m and 1QFY15 loss of RM19.7m).

• Cumulative losses for 1H amounted to RM31.9m vs. earnings (ex-forex) of RM30.9m last year.

Deviation

• Needless to say, the results were below expectations against our full year profit forecast of RM28.6m (consensus: RM58m).

Dividends

• None declared.

Highlights

• Cost overruns continue. It appears that the cost overruns on its local projects continue to plague profitability. Based on its orderbook, 2 key local projects that remain are the MRT and Tg Bin power plant. Apart from that, the notes to its financial statements disclosed that “additional costs were also recognised upon project finalisation”, which we reckon could refer to the Janamanjung power plant.

• Orderbook continues to thin. We estimate Mudajaya’s orderbook to stand at RM962m which implies a thin cover of 1.1x its FY14 construction revenue. The 36% QoQ decline in revenue reflects its thinning orderbook balance. In fact, this is the 4th consecutive quarter of revenue decline.

Risks

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

Forecasts

• We further cut FY15 earnings by 95% and assume this will be a breakeven year for Mudajaya. This of course hinges heavily on its ability to be profitable in 2H to offset the losses incurred in 1H. Aside that, FY16-17 earnings are also reduced by 25% and 15% respectively as we reduce our margin assumptions.
• 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. If this fails to happen, losses could once again eventuate.

Rating

• SELL, TP: RM0.71
• With the continued weak results, it is hard to justify anything aside a SELL rating. While we acknowledge there is value in its IPP, the market is unlikely to ascribe much to it until commercial operations take off.

Valuation

• Aside our earnings cut, we also widen our SOP discount from 25% to 50% to reflect continued uncertainty on its path back to profitability. As such, our TP is cut from RM1.19 to RM0.71.

Source: Hong Leong Investment Bank Research - 28 Aug 2015