Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD
Research House: CIMB
Mudajaya Group Bhd
(May 13, RM5.11)
Maintain buy at RM5.09 with target price raised to RM7.94: Mudajaya achieved a record quarter in 1QFY10. Although annualised core net profit made up 94% of our full-year forecast and 98% of consensus, we consider the performance to be above expectations as earnings in the remaining quarters are likely to be stronger quarter-on-quarter (q-o-q), as was the case in FY09. The main source of deviation was stronger-than-expected construction margins.
Margins should continue to improve, driven by accelerating EP (engineering and procurement) profits in India. Factoring in higher profit recognition for the Indian IPP (independent power producer), we raise our FY10-FY12 forecasts by 8%-15%. This pushes our target price from RM7.52 to RM7.94 based on an unchanged 20% discount to revised net asset value (RNAV).
This good set of results may extend the stock's re-rating, along with (i) contract awards, both local and overseas, (ii) completion of financial closure for the IPP, and (iii) swifter-than-expected progress of the ultra mega power plant (UMPP). We continue to recommend a buy.
1QFY10 revenue surged 91% year-on-year (y-o-y) and 13% q-o-q. However, core net profit more than tripled, fuelled by stronger construction earnings, of which 30% came from EP works for the Indian IPP. Construction Ebit (earnings before interest and tax) soared 288% y-o-y in 1QFY10 and 34% q-o-q, pushing the segment's Ebit margin up 17 percentage points to 35%, which is commendable by industry standards. The group declared a first single-tier interim dividend of one sen, higher than 1QFY09's 0.6 sen, which was a pleasant surprise.
Apart from the KLKS highway, EP works for the Chhattisgarh IPP should gain momentum in the coming quarters and extend the margin expansion seen in FY09. On average, core net profit rose 46% or RM9 million q-o-q in the four quarters of FY09. Going by this trend, our FY10 forecast of RM215 million is likely to be exceeded. In view of this, we raise our FY10-FY12 earnings forecasts by 8%-15%. This includes an upgrade of our construction net profit component, which constitutes 80% of our RNAV and raises our RNAV/share from RM9.40 to RM9.93.
Our target price goes up 6% from RM7.52 to RM7.94, still pegged to a 20% discount to RNAV. Mudajaya offers attractive CY10-11 P/Es (price-to-earnings) of 7-9 times which are among the lowest in the sector. We continue to rate the stock a buy given its strong fundamentals and growth via IPP ventures in India and EPCC (engineering, procurement, construction and commissioning) opportunities in the region.
Investors with higher risk appetite should consider the call warrants. - CIMB Research, May 13
This article appeared in The Edge Financial Daily, May 14, 2010.
Company Name: MUDAJAYA GROUP BHD
Research House: CIMB
Mudajaya Group Bhd
(May 13, RM5.11)
Maintain buy at RM5.09 with target price raised to RM7.94: Mudajaya achieved a record quarter in 1QFY10. Although annualised core net profit made up 94% of our full-year forecast and 98% of consensus, we consider the performance to be above expectations as earnings in the remaining quarters are likely to be stronger quarter-on-quarter (q-o-q), as was the case in FY09. The main source of deviation was stronger-than-expected construction margins.
Margins should continue to improve, driven by accelerating EP (engineering and procurement) profits in India. Factoring in higher profit recognition for the Indian IPP (independent power producer), we raise our FY10-FY12 forecasts by 8%-15%. This pushes our target price from RM7.52 to RM7.94 based on an unchanged 20% discount to revised net asset value (RNAV).
This good set of results may extend the stock's re-rating, along with (i) contract awards, both local and overseas, (ii) completion of financial closure for the IPP, and (iii) swifter-than-expected progress of the ultra mega power plant (UMPP). We continue to recommend a buy.
1QFY10 revenue surged 91% year-on-year (y-o-y) and 13% q-o-q. However, core net profit more than tripled, fuelled by stronger construction earnings, of which 30% came from EP works for the Indian IPP. Construction Ebit (earnings before interest and tax) soared 288% y-o-y in 1QFY10 and 34% q-o-q, pushing the segment's Ebit margin up 17 percentage points to 35%, which is commendable by industry standards. The group declared a first single-tier interim dividend of one sen, higher than 1QFY09's 0.6 sen, which was a pleasant surprise.
Apart from the KLKS highway, EP works for the Chhattisgarh IPP should gain momentum in the coming quarters and extend the margin expansion seen in FY09. On average, core net profit rose 46% or RM9 million q-o-q in the four quarters of FY09. Going by this trend, our FY10 forecast of RM215 million is likely to be exceeded. In view of this, we raise our FY10-FY12 earnings forecasts by 8%-15%. This includes an upgrade of our construction net profit component, which constitutes 80% of our RNAV and raises our RNAV/share from RM9.40 to RM9.93.
Our target price goes up 6% from RM7.52 to RM7.94, still pegged to a 20% discount to RNAV. Mudajaya offers attractive CY10-11 P/Es (price-to-earnings) of 7-9 times which are among the lowest in the sector. We continue to rate the stock a buy given its strong fundamentals and growth via IPP ventures in India and EPCC (engineering, procurement, construction and commissioning) opportunities in the region.
Investors with higher risk appetite should consider the call warrants. - CIMB Research, May 13
This article appeared in The Edge Financial Daily, May 14, 2010.
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