MUDAJYA (FV RM2.88-NEUTRAL) 1QFY12 Results Review: Speedier Recognition of Works in India

Mudajaya’s 1QFY12 net profit of RM74.2m came in way above our and consensus, representing 30.8% and 30.7% of the  respective full-year forecasts, owing to higher contribution from ongoing works in Chhattisgarh, India.  The company proposed a first interim DPS of 4.0 sen. While we are revising our FY12 forecast upward on accelerated recognition of works for its ongoing  project in Chhattisgarh, we are maintaining our NEUTRAL call pending more affirmative indications on Coal India’s ongoing negotiations with power producers in India.

Beats expectations on recognition of India works. Mudajaya’s  1QFY12 revenue amounted to  RM440.5m  (+2.3% q-o-q, +97.5% y-o-y), while core earnings came in at RM74.2m (+11.7% q-o-q, +80.0% y-o-y). These numbers generally represent some decent  improvements  for both sequential and y-o-y, owing to the  delivery of major equipment components of its EPC  contract for the 4x360MW coal-fired power plant at Chhattisgarh, India during the quarter. Management guided that it has recognized close to  RM400m of the project  at its top-line level during the quarter, which implies that its EPC  contract on RKM Powergen stood at an outstanding  balance  of RM1.1bn as of March 2012.  In view of its sturdy books with cash per share at RM0.45 and nil borrowings, management proposed a first interim DPS of 4.0 sen.  

Revised forecasts. We revisited our model to tweak our assumptions to account for the speedier recognition of Mudajaya’s ongoing works in Chhattisgarh. With that, our FY12 net profit forecast is revised upward by 10.9% but our FY13 core earnings is lowered by 5.5% consequently. Our revised FY12 net profit estimate of RM267.1m still falls short of the  annualized 1QFY12 earnings of RM298.4m as we are cautious on  the  potential delay in physical works for its India site, as the upcoming monsoon season that typically runs from end-June to late-August  in Chhattisgarh could potentially slow down the project’s progress.  

NEUTRAL. Although Mudajaya’s 1QFY12 results trumped both our and street estimates and would likely attract some buying interest in the near term, we continue to take a cautious stance on the stock in light of the  potential downside risks arising from coal supply shortages in India. Note that a source from India’s Coal Ministry highlighted that the ministry had received a letter from Coal  India (CIL) saying  that it would be not possible to meet the mandated 80% coal requirements of the power firms. On the other hand, CIL’s subsidiary Mahanadi Coalfields Ltd was slapped with a hefty INR13bn fine by the Orissa state government for mining coal without statutory clearances in the area. These developments warrant our cautious stance on Mudajaya and hence, we maintain our NEUTRAL call at a revised FV of RM2.88, which pegs a 50% discount to our SOP valuation.

Source: OSK