Mudajaya's weak performance in recent quarters continued into Q4, after slipping into losses of -99.7m in 4QFY14, which was admittedly worse than expected even after having revised downwards our earnings in anticipation of cost over-runs and variation orders (VOs). YTD, the Group's net profit swung into losses of –RM70.2m which was way below our and consensus expectations. As indicated earlier, the cost pressure is primarily due to cost overruns in Janamanjung, and current key projects such as MRT is not yielding the margins as expected.

RM1.2bn outstanding orderbook. Current outstanding orderbook is mainly coming from MRT (c.RM610m), and the other main job includes the offshore equipment procurement works for its 40%-owned 62MW Wind Energy Farm in Cebu, Philippines for RM375.4m. We understand the tender book is c.RM8bn, primarily from the power industry (e.g. Tracks 3B & 4A, Pengerang, etc) worth c.RM1.5bn. Other jobs eyed include highways such as DASH and SUKE. The likely jobs to be clinched in the next 3 months will be the construction job for land swap (c.RM260m) and WCE road packages (RM100-200m).

Indian Power Plant. The power plant in Mudajaya's 4x360MW power plant in India, which was initially expected to be commissioned end- 2014, was expected to be fired up soon pending certain testing to be done to synchronize the power generated into the grid system. We understand that at least two units will be fired up by end-2015 and the remaining by early 2016. All told, we revised downwards FY15-FY16F earnings by -13% and -8% respectively to account for lower margins and billing assumptions.

Maintain Neutral but lower our TP to RM1.60 (from RM1.80 previously) with similar 20% discount to its NTA. While positive with the Group's direction to improve earnings quality, we believe that the stock will continue to suffer until the Group delivers on earnings. Near term, we believe that earnings will still be under pressure due to thinning outstanding order book and rising construction costs (including provisions).

Source: PublicInvest Research - 2 Mar 2015