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

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD

Research House: OSK

Price Call: BUY

Target Price: 3.88

Mudajaya's FY11  netprofit  of RM231.0m came in withinour  and consensus estimates, aided by afavourable tax rate of 5.8%. At the pretax level, earnings lagged bothestimates by 21.1% and 12.3% respectively, owing to  lower construction margins recognized  and start-up expenses for its associate. Afinal DPS of 2.5 sen was proposed, bringing its FY11 DPS to 8.0 sen. On aseparate note, Mudajaya bagged the RM1bn civil works contract of the TanjungBin plant extension. Maintain BUY with our FV marginally lowered to RM3.88.

Subpar margins.Mudajaya's FY11  revenue of RM1347.1msurged 54.8% y-o-y driven by the 63.2% jump in contribution from its constructiondivision, which saw the delivery of equipment components for  its Chhattisgarh  power plant. However, PBT  improved by a more moderate 5.6% to RM293.9mas margins retreated on escalating material costs and the sharing of start-upexpenses in its associate RKM Powergen. All in all, FY11 core earnings were up7.2% y-o-y to RM231.0m despite higher leakages on minority interest (which morethan doubled to RM45.9m due to ongoing works in Chhattisgarh) as the groupregistered a below average effective tax rate of 5.8% for the year. It proposeda final DPS of 2.5 sen, bringing its FY11 DPS to 8.0 sen which implies a 20%payout ratio.

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

Tg Bin in its bag.  On a separate announcement, Mudajayaconfirmed that it  was awarded the RM1bncontract for the construction of civil works for the 1,000MW Tanjung Bin plantextension, with the job likely to be completed by mid-2015. We deem the announcementwithin our expectations (as highlighted in our previous report entitled 'Likely To Snag Tanjung Bin Job'). Mudajaya'sorderbook has now swelled to RM4.6bn (excluding RM1bn legacy jobs), which inour view could keep it busy well into 2014.

BUY. We aretweaking our construction margins lower as a precautionary stance in view offurther potential weaknesses, but we are incorporating the RM1bn Tg Binextension 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 alreadyhit our FY12 orderbook replenishment target of RM1bn, we do not discount the possibilityof it securing more contracts this year as the Government accelerates the implementationof 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