News

• Additional works at RAPID. Mudajaya announced that it was awarded a RM220m contract from PETRONAS for the construction of warehouses and workshops at RAPID. The job is scheduled for completion by Jan 2018 (25 months).

Comments

• Job wins are adding on… With this contract in the bag, YTD job wins now amount to RM753m. Since Dec 2014, Mudajaya has managed to secure RM809m worth of works at RAPID. We estimate that this would bring its orderbook to RM1.6bn, implying a cover ratio of 1.9x on FY14 construction revenue. While this multiple is still below most of its peers, it is certainly a lauded recovery from its cover ratio of only 1.1x as of end 2Q.

• …and margins are recovering. After 3 consecutive quarters of losses due to cost overruns, Mudajaya finally returned to the black in 3QFY15. It also managed to recover back some of its costs that were previously expensed off. We take this as a positive sign that most of its problematic jobs are now out of the way.

Risks

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

Forecasts

• Although YTD job wins of RM753m 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 the profits in 2H to offset losses in 1H.

Rating

• Maintain HOLD TP: RM1.14
• Whilst the turnaround in 3Q is an encouraging sign and job wins are starting to flow, we are not ready to advocate a Buy rating yet until we see more consistency in its earnings turnaround. Further delays in the commencement of its Chhattisgarh IPP is another downside risk to our projected earnings. Maintain HOLD as most of the negatives appear priced in but there lacks catalysts to bank on an upside.

Valuation

• Our SOP based TP of RM1.14 applies a 20% discount and implies FY16 P/E of 12.9x but this hinges heavily on its IPP earnings coming in.

Source: Hong Leong Investment Bank Research - 23 Dec 2015