Results

• Mudajaya’s 3QFY15 results came in with revenue of RM108.2m (-48% YoY, +2% QoQ) and earnings (ex-forex) of RM10.9m (>900% YoY, 2QFY15: -RM12.3m loss). After 3 consecutive prior quarters of losses, Mudajaya finally managed to churn profits in 3Q.

• Despite returning to the black in 3Q, cumulative 9M numbers remained in the red at RM21m loss (9MFY14: RM32m profit).

Deviation

• We expect FY15 earnings to end at a breakeven level. This implies that 2H will rake in profits to offset the losses in 1H. With 3Q returning to the black, this is a positive indication that our full year breakeven target can be met. As such, we regard the results to be inline in anticipation of a better 4Q.

Dividends

• None declared.

Highlights

• Cost controls and recovery. Despite no commencement of newly secured jobs during the quarter, Mudajaya managed to return to profitability. This was aided by stricter cost controls on its existing jobs. Mudajaya also managed to recover back some costs on a local project which was previously expensed off.

• Orderbook in a better shape. Mudajaya has managed to secure RM533 worth of new jobs YTD. With this, we estimate its orderbook balance to currently stand at RM1.4bn, translating to a cover ratio of 1.7x on FY14 construction revenue. While this is not exactly at a comfortable level (i.e. more than 2x), it is certainly much better then when it started the year with at 1.2x.

Risks

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

Forecasts

• We have already projected for Mudajaya to return to the black in 2H. As such, our forecast is maintained.

Rating

• Maintain HOLD, TP: RM1.14
• Whilst the turnaround in 3Q is an encouraging sign, we are not ready to advocate a Buy rating yet as earnings visibility remains murky due to its thin orderbook cover and lack of clarity regarding the start-up of its Chhattisgarh IPP. Maintain HOLD as any share price weakness should abate with numbers returning to the black.

Valuation

• While earnings forecasts are unchanged, we lower our SOP discount from 30% to 20% given lower risks regarding its turnaround potential.

Source: Hong Leong Investment Bank Research - 26 Nov 2015