MUDJYA (FV RM3.88 - BUY) FY11 Results Review: Aided by Tax Rate Boost

Mudajaya’s FY11  net profit  of RM231.0m came in within our  and consensus estimates, aided by a favourable tax rate of 5.8%. At the pretax level, earnings lagged both estimates by 21.1% and 12.3% respectively, owing to  lower construction margins recognized  and start-up expenses for its associate. A final DPS of 2.5 sen was proposed, bringing its FY11 DPS to 8.0 sen. On a separate note, Mudajaya bagged the RM1bn civil works contract of the Tanjung Bin plant extension. Maintain BUY with our FV marginally lowered to RM3.88.

Subpar margins. Mudajaya’s FY11  revenue of RM1347.1m surged 54.8% y-o-y driven by the 63.2% jump in contribution from its construction division, which saw the delivery of equipment components for  its Chhattisgarh  power plant. However, PBT  improved by a more moderate 5.6% to RM293.9m as margins retreated on escalating material costs and the sharing of start-up expenses in its associate RKM Powergen. All in all, FY11 core earnings were up 7.2% y-o-y to RM231.0m despite higher leakages on minority interest (which more than doubled to RM45.9m due to ongoing works in Chhattisgarh) as the group registered a below average effective tax rate of 5.8% for the year. It proposed a final DPS of 2.5 sen, bringing its FY11 DPS to 8.0 sen which implies a 20% payout ratio.

Decent quarterly numbers. 4QFY11 numbers generally marked some decent improvements in terms of both sequential and y-o-y, as we understand that  its  work in Chhattisgarh is now back on track and in full swing. Management guided that it has recognized close to 40% of the project with the first 2 units of the power plant ready to be commissioned by end-2012, with the remaining expected to be ready by mid-2013.  

Tg Bin in its bag.  On a separate announcement, Mudajaya confirmed that it  was awarded the RM1bn contract for the construction of civil works for the 1,000MW Tanjung Bin plant extension, with the job likely to be completed by mid-2015. We deem the announcement within our expectations (as highlighted in our  previous report entitled “Likely To Snag Tanjung Bin Job”). Mudajaya’s orderbook has now swelled to RM4.6bn (excluding RM1bn legacy jobs), which in our view could keep it busy well into 2014.

BUY. We are tweaking our construction margins lower as a precautionary stance in view of further potential weaknesses, but we are incorporating the RM1bn Tg Bin extension into our orderbook assumptions. Consequently, our  FY12  EPS forecast  is lowered by 6.0% but our FY13 core earnings are bumped up by 5.6%. Although the group has already hit our FY12 orderbook replenishment target of RM1bn, we do not discount the possibility of it securing more contracts this year as the Government accelerates the implementation of mega-billion construction projects, including the 2,400MW Prai power plant. Maintain BUY with its FV marginally lowered to RM3.88 based on our SOP valuation.

Source: OSK188