Mudajaya's 9MFY12  net  profit  of  RM189.9m  was  within  both  our  and  consensus expectations at 71.2% and 75.4% of the full-year forecasts respectively. That said, we  are  paring  down  our FY12  and  FY13  core  earnings forecasts  as  management has acknowledged the possibility of more delays at its Chhattisgarh project. While the company's current FY13 PE of 5.5x and FY14 PE of 4.4x appear cheap at first glance, we continue to caution investors on the murky outlook for India's coal industry. Maintain NEUTRAL, with our FV slightly lower at RM2.85.
 
Decent numbers. Mudajaya's 9MFY12 revenue jumped 47.5% y-o-y to RM1.35bn while core earnings improved by a smaller magnitude of 15.4% y-o-y to RM189.9m (+15.4% y-o-y)  as  EBIT  margin  shrank  600bps  to  17.0%.  We  attribute  this  to lower  revenue recognition  from  its  more  profitable  Chhattisgarh  project  in  India,  as  evident  the  in reduced leakages via minority interest amounting to RM5.6m (-55.8% y-o-y, -49.1% q-o-q)  recognized  it during  the  quarter.  The  3QFY12  numbers are weaker  q-o-q and  y-o-y, with revenue totaling RM352.7m and net profit at RM55.3m due to what we understand to  be  an  unexpected  slowdown  in  progress  at  its  Chhattisgarh  project.  On  a  positive note,  the  company  has  declared  a  second  interim  DPS  of  2.5  sen,  bringing  its  YTD payout to 6.5 sen per share.    

Potential delays in India. Our channel checks indicate that the progress of construction at its Chhattisgarh project may have faced more delays due to unfavorable weather as well  as  labour  shortages.  It  appears  that  the  first  unit  of  its  4x360MW  power  plant  will only be completed by end-1Q13, vs end-FY12 previously, with the remaining three units expected to come on stream on a staggered basis after three months thereafter. Taking that into account, we are trimming our FY12 and FY13 net profit forecasts by 3.4% and 6.3%  respectively  while  our  FY14  numbers  are  left  largely  unchanged,  in  which  we expect the full year impact with all four units being operational by then.

More local power plant jobs likely. Having secured RM1.91bn worth of new jobs YTD, we believe Mudajaya would likely target more power plant jobs as moving into FY13. Its had earlier submitted a tender for the civil works portion of TNB's RM3bn Prai power plant,  which  we  understand  to  worth  some  RM400m-RM500m.  The  group  is  also exploring the possibility of bidding for the civil works portion of the proposed power plant in  RAPID Pengerang  which  we  believe  to  be  worth  RM600m-RM700m.  On  top  of  that, its management hinted that the group is looking at potential infrastructure jobs, which we believe  could  likely  involve  the  proposed  RM1.5bn  Damansara-Shah  Alam  Elevated Expressway and the much-debated RM2bn Kinrara Damansara Expressway. Our FY13 and FY14 orderbook replenishment stands at RM1bn p.a. at this juncture.

Coal-nundrum continues. With the end-Nov deadline set by India's Prime Minister's Office to firm up the fuel  supply  agreements  between  Coal  India  and  power  producers  now  looming,  we  continue  to  maintain our  cautious  on  Mudajaya.  Maintain  our  NEUTRAL  call  at  marginally  revised  FV  of  RM2.85  as  we  roll forward our valuation to FY13 based on a lower PER of 8x (from 10x previously) pegged to its construction earnings to reflect the likely blip in investors' sentiment on the delay in completion of its Chhattisgarh power plant  as  well  as  pegging  a  unchanged  50%  discount  to  our  SOP  valuation  to  reflect  the  inherent  risks  in India's power industry.

Source: OSK