We maintain our Neutral call, but fine-tune up forecasts by 1-2% and fair value to RM2.85 from RM2.81.   No change to our belief that Mudajaya’s 4 x 360MW greenfield power plant in Chhattisgarh, India, will have to start generating power before a more meaningful re-rating of the stock could ensue.  Mudajaya now guided plant commissioning in end-2013 vis-à-vis Jul-Aug 2013 when we saw the company in Jan 2013.  

♦  Indian power plant’s COD by end-2013, no problem with coal supply.  Mudajaya now guided a commercial operation date (COD) of 
end-2013 for Unit 1 of its 4 x 360MW greenfield power plant in Chhattisgarh, India, vis-à-vis Jul-Aug 2013 it had guided when we saw 
the company in Jan 2013.  Mudajaya reiterated that it is not overly concerned about coal shortage upon CODs as it expects supply of local coal in India to exceed demand over the short term as many competing new power plant projects are failing to complete in India.  

♦  Not too hungry for construction jobs.  Mudajaya guided a worst-case new contract wins of only MYR500-600m in FY13 as it does not intend to bid too aggressively in the market for contracts as construction resources continue to tighten, pressuring costs up and pushing margins down.

♦  60-70% recurring incomes eventually.   It reiterated its long-term strategy of gradually growing businesses with recurring incomes such as power plant concessions and private finance initiative (PFI) projects so that they will eventually contribute 60-70% of group earnings.

♦  Maintain Neutral.  With the 13th general election now out of the way, we believe investors will refocus on fundamentals of construction stocks that are reasonably attractive underpinned by a construction upcycle.  For Mudajaya, we believe a more meaningful stock re-rating will only ensue when its 4 x 360MW greenfield power plant in Chhattisgarh, India, finally commences operation (quashing risks that it could potentially end up being a white elephant).  Fair value is fine-tuned up to MYR2.85 (from MYR2.81) based on 7x revised FY14 EPS.

Source: RHB