News

• Additional works at RAPID. Mudajaya announced that it was awarded an additional work scope for the ongoing Pengerang Cogen plant civil works. The additional works amount to RM43.9m, which brings the revised contract sum to RM99.4m. The job is scheduled for completion by July 2017.

Comments

• Job wins coming in but… With this smallish contract in the bag, Mudajaya’s YTD job wins stands at RM533m. We estimate that this brings its orderbook to RM1.5bn, implying a cover ratio of 1.8x on FY14 construction revenue. This is a lauded recovery from its cover ratio of only 1.1x as of end 2Q.

• …concerns are on its margins. Our most immediate concern on Mudajaya remains on its margins. Mudajaya has been in the red for 3 consecutive quarters (i.e. since 4QFY14) due to cost overruns on selected domestic jobs in its orderbook. Until some turnaround signs are witnessed on this front, it is hard to turn bullish on earnings.

Risks

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

Forecasts

• Although YTD job wins of RM533m has surpassed our FY15 orderbook replenishment target of RM300m, we are in no hurry to raise our earnings forecast as its annual job wins tend to be rather lumpy and inconsistent. There is also downside risk to earnings should its Chhattisgarh IPP fail to commence according to out postulated timeline.
• We continue to project a breakeven year for FY15 which hinges heavily on 2H numbers returning to the black to offset the reds in 1H.

Rating

• HOLD, TP: RM0.99
• While we are not exactly bullish on Mudajaya’s earnings prospects, the recent share price retracement now warrants us to upgrade our rating from a Sell to HOLD. We reckon that its watershed earnings for this year has been adequately priced in.

Valuation

• Our unchanged SOP based TP of RM0.99 applies a 30% discount and implies FY16 P/E of 11.3x but this hinges heavily on its IPP earnings coming in.

Source: Hong Leong Investment Bank Research - 6 Oct 2015