Mudajaya -BUY; FV: RM3.72

During our recent conversation with Mudajaya following the release of its 4QFY11 results, management said works at Chhattisgarh are largely on track for all 4 units to be completed by 3Q 2013. On the domestic front, jobs  may continue to  flow with upcoming potential contracts such as civil works for the 1,400MW Prai power plant, Kinrara-Damansara Expressway  (RM1.5bn-RM2bn), LRT depot in Putra Heights  (RM400m), as well as aerobridges at KLIA2 and the Petronas Solar Farm in Kuantan worth RM100m each.  We continue to like Mudajaya’s  relatively attractive valuation, strong contract wins  YTD, and potential  to nail  more contracts. Maintain BUY, at a revised FV of RM3.72, based on SOP valuation.

Sturdy RM4.0bn orderbook. Mudajaya’s orderbook totals a stellar RM4.0bn, of which RM1.0bn worth of jobs was secured this year after the company clinched the civil works portion of the proposed Tg Bin power plant extension. The jobs on hand include  the RM2.0bn remaining works at its 26%-owned Chhattisgarh power plant in India, RM600m in outstanding civil works at the Manjung power plant’s extension and some small contracts totaling RM60m. Following a meeting with management, we took a look at the progress of its India venture as well as potential jobs flow in the near term.     

Progress in India. Mudajaya embarked on its maiden venture in India’s power sector in July 2005  by taking  up  a 26% stake in RKM Powergen, the special purpose vehicle (SPV)  undertaking a  4X360MW coal-fired IPP  project worth RM5bn in Chhattisgarh, India. The SPV inked a Power Purchase Agreement (PPA) with the Chhattisgarh State Electricity Board and Power Trading Corp of India to supply power at a pre-fixed tariff, subject to fuel and interest costs pass-through. Subsequently, Mudajaya’s 80%-owned subsidiary, MIPP International, was awarded the engineering and procurement contract for all the 4 units. Progress has been fairly encouraging so far, with the first unit likely to commence operation by the end of this year, while the rest will go on stream on  a staggered basis every 3 months thereafter. Despite some delays earlier due to issues relating to the resettlement of villages and floods, works have been restored and the company’s progress remains largely on track. 

IPP contribution to kick in from 2013. Assuming no further delays, we expect earnings from its power venture to commence progressively by early 2013, with full year impact likely to kick in by 2014. Assuming an EBITDA margin of 50%, RKM Powergen would generate core earnings of some RM600m-RM900m p.a. The underlying differences lie in the effective tax rate (first 10 years of operation is tax-exempt), targeted accelerated depreciation in the early years, as well as the market tariff rate upon expiry of the PPA, which we assume to be INR4.5/kWH vis-à-vis the contracted INR2.3-3/kWH rate

Source: OSK188