We take a look at Mudajaya's potential job prospects amidst a slew of power plant initiatives in Malaysia as well as the latest developments in India's coal industry. While we are positive on the group's potential jobs flow from domestic power projects,  we  are  maintaining  our  NEUTRAL  stance  pending  the  long-awaited signing of the FSA between its 26%-owned India unit RKM Powergen and CIL. Our FV is unchanged at RM2.88, pegged to a 50% discount to our SOP valuation. 
 
Power  jobs  up  for  grabs.  Following  the  award  of  the  much  anticipated  RM3bn 1,071MW Prai power plant to TNB, we believe Mudajaya would likely tender for the civil works  involved,  which  we  estimate  could  cost  as  much  as  RM500m.  With  the  plant
scheduled  to  commence  operations  by  March  2016,  we  expect  an  official  award  by 1H13.  Meanwhile, Mudajaya's management confirmed that it  would  tie  up  with  foreign partners  to  participate  in  the  prequalification  of  the  proposed  1,300MW  power  plant project  in  RAPID  Pengerang,  the  submission  for  which  will  close  by  end-October. Should  this  materialize,  it  would  mark  the company's maiden  IPP  venture  in  Malaysia, with  potential  recurring  earnings  estimated  at  RM200m-RM300m  pa,  assuming  a  50% stake. This would be on top of the civil works involved, which management pointed out would be within RM800m-RM1bn.   
 
Orderbook  assumptions.  Having  secured  over  RM1.8bn  worth  of  new  jobs  YTD, Mudajaya's outstanding orderbook stands at approx. RM3bn,  which  includes  RM800m from  its  existing  EPC  contract  in  Chhattisgarh,  RM900m  and  RM500m  on  Tg  Bin  and Janamanjung  power  plant  extension  respectively  as  well  as  RM800m  on  the  recently secured  v3  viaduct  package  on  KV  MRT  SBK  line.  We  assume  that  there  will  be  no more jobs  winnings  for  the  remainder  of  the  year  while  our  FY13  and  FY14  orderbook replenishment stands at RM1bn p.a. respectively.
 
Light  at  the  end  of  tunnel  in  India?  As  for  India,  the  Prime  Minister's  Office  has directed  Coal  India  (CIL)  to  sign  all  fuel  supply  agreements  (FSAs)  by  end-November. Based  on  the  latest  proposed  FSA  as  approved  by CIL's board, CIL is  committed  to supply at least 80% of the power producers' coal requirements. Penalty in the event of supply  shortfall  ranges  from  1.5%-40%  of  the  value  of  the  shortfall.  Of  the  80% commitment  threshold,  65%  of  the  coal  requirements  will  be  sourced  locally  while  the remaining 15% will be imported from international markets at cost-plus basis. While we find  it  comforting  that  the  government  is  taking  a  proactive  approach  to  resolve  the existing deadlock, we remain cautious of further delays in reaching an amicable solution as India's political climate continues to worsen amidst mounting pressure from  the opposition parties to probe alleged wrongdoings by the Sonja Gandhi administration.

Maintain  NEUTRAL.  All  in,  we are positive on Mudajaya's potential jobs flow  in  2013  as  we  foresee  the group  expanding  its  footprint  within  the  domestic  power  industry  by  leveraging  on  its  expertise  in  power-related  project.  However,  we  are  maintaining  our  NEUTRAL  stance  for  now  as  we  reiterate  our  cautious stance  on  its  IPP  venture  in  India  through  its  26%-owned  associate  RKM  Powergen.  While  we  see  some positives with the Prime Minister's Office now exerting more pressure on both the coal and power ministry to come up with an amicable solution to resolve the coal saga, we would rather adopt a wait-and-see approach for the FSAs to be firmed up after rounds of disappointments. Our FV remains unchanged at RM2.88, pegged to a 50% discount on our FY12-based SOP valuation to reflect the inherent risks of potential delays in RKM Powergen's commencement of operations in light of the unresolved coal woes.

Source: OSK