Mudajaya Group - Catalysts on home ground

Date: 
2013-05-16
Firm: 
CIMB
Stock: 
MUDAJYA
Price Target: 
3.30
Price Call: 
BUY
Last Price: 
0.135
Upside/Downside: 
+3.165 (2344.44%)
Target RM3.30 (Long Term: Out Perform)

Domestic catalysts were the highlights during our discussions with management. New jobs could come from highways, power plants and MRT projects. Its first Indian IPP is to be fired up in 4Q13, boosting FY14 though FY13 numbers should still show a decline.

We slash our FY13-14 EPS by 18-21% to reflect the Indian IPP delay but its DCF value is intact, hence our target price too, still at a 40% RNAV discount. The signing of a short-term coal-supply agreement should trigger a turnaround for its Indian IPP. Maintain Outperform with catalysts from the potential coal-supply agreement and domestic job wins. Mudajaya remains our top pick among the smaller caps. 

What Happened 
Our meeting with management yesterday addressed our concerns over the drawn-out signing of a fuel supply agreement (FSA) for the group's 26%-owned Indian IPP. The good news is that an alternative short-term coal-supply agreement will be signed with Coal India (CIL). The first unit of the 1,440MW is scheduled for testing in 4Q13. The group is pursuing up to RM600m worth of jobs in 2H13 and is positive on prospects in the highway and power-plant segments. It acknowledged its chances for the MRT project but did not sound too exciting given the lower competitive margins. In the medium term, it is looking at a potential land swap which would be positive for its construction and property businesses. 

What We Think 
A short-term coal-supply agreement with CIL will allay our concerns over further delays in the commissioning of its Indian IPP. The negative surprise was that FY13 earnings could decline as IPP profits would only materialise from FY14. We believe the stock's prospects have shifted to domestic construction. Mudajaya should emerge as one of the beneficiaries of the next upcycle, led by public transport projects. Investors should not disregard its chances of securing more power-plant extension jobs as it is a key player in this segment. 

What You Should Do 
Accumulate. The stock remains a laggard with strong domestic prospects.

Discussions
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KC Loh

Where my Singh from MAS? Cimb didn't give doomsday report what?

2013-05-16 22:28

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